Journal of Legislation
Volume 38 | Issue 1
Article 2
1-1-2012
Abolishing the Prohibition on Personal Service
Contracts
Michael K. Grimaldi
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Grimaldi, Michael K. (2012) "Abolishing the Prohibition on Personal Service Contracts," Journal of Legislation: Vol. 38: Iss. 1, Article
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ABOLISHING THE PROHIBITION ON PERSONAL
SERVICE CONTRACTS
Michael K. Grimaldi*
.......................................................
THE EXPLOSION OF PERSONAL SERVICE CONTRACTS
72
INTRODUCTION
I.
A.
B.
II.
III.
76
..... 77
...... 79
...................
Personnel Ceilings Encourages the Use of Contractors .....
Workarounds as Analytical Framework ..............
FEDERAL ACQUISITION REGULATIONS' INEFFICIENT PROHIBITION OF
PERSONAL SERVICE CONTRACTS
..............................
...... 80
..........
...................
A. Defining Service Contracts
B. Problems Distinguishing Personal Service Contracts From
.....................
Nonpersonal Service Contracts
C. The Prohibition is an Inefficient Policy....................
D. Personal Service Contract Case Studies....................
..........
1. Department of Health and Human Services ........
2. Army Contracting Center of Excellence .................
GOVERNMENT JOINT EMPLOYERS AND TITLE VII: THE PERSONAL
SERVICES PROHIBITION HAS NOT PREVENTED COURTS FROM IMPLYING
EMPLOYMENT RELATIONSHIPS BETWEEN CONTRACTOR EMPLOYEES AND
THE GOVERNMENT.............................
..................
A. The Joint Employer Doctrine as Applied to the Federal
Government.......................................
B. Joint-Employer Case Studies.......................
..........
1. The Sexually Harassing Navy Supervisor ........
.......
............
2. Pregnancy Discrimination at the DOJ
C. Putting the Personal Services Prohibition and the Joint-Employer
.....
................
Doctrines Together............
IV.
81
83
84
86
87
88
89
89
92
92
93
95
97
99
A. Insourcing the Work by Hiring More Government Employees .....
..... 102
1. Better Enforcement of the Prohibition .............
B. The Best Option: Abolish the Prohibition then Regulate....................103
.....
..... 104
1. Contractor Ethics
......................
SOLUTIONS TO THE PERSONAL SERVICES CONUNDRUM .....
.............
* American Board of Trial Advocates Fellow, 2011. Discourse Editor, UCLA Law Review, Volume 58. J.D.,
UCLA School of Law, 2011; B.S., University of Southern California, 2008. Thanks to Professor Jon D.
Michaels for being an amazing mentor and teacher. This Article was first presented in Professor Michaels'
2011 UCLA Law Seminar, Redesigning the Administrative State. The students in the class offered very
helpful critiques and comments. This Article builds off the ideas of Professor Steven L. Schooner and Collin
D. Swan; without their insight and advice, this Article would not have been possible. Thanks goes to Isomi
Miake-Lye for her editing prowess and for helping me design the figures, and to John Markiano for educating
me about personal service contractors. Finally, thanks goes to the editors of the Notre Dame Journal of
Legislation for their hard work on this Article, especially Emily Martin and Catherine Zung. This Article is
dedicated to my mom, Vicky Grimaldi.
71
JournalofLegislation
72
[Vol. 38:1
2. Eliminating the Employment Law Status Differential Between
Personal Service Contractors and Government Employees .......... 105
3. Stopping
Contractors
From
Performing
Inherently
...... 105
.....................
Governmental Functions
106
...................
a) Current Law....................
b.) Obama's Policy Letter on the Proper Use of Contractors ...... 107
C. Proposal to Amend FAR's Personal Services Contract Prohibition.... 109
........... 111
1. Creating a Public Accountability Regime.....
2. Mandatory Reform: Congressional Oversight of Personal
...... 114
..........................
Service Contracts
CONCLUSION
..............................................................
116
INTRODUCTION
President Clinton used to say that the "era of big government is over."I Yet,
nothing could be further from the truth. The government is bigger than ever, and
growing.2 One reason for this trend is the growth in the service contractor industry.
Service contractors perform services and do jobs on behalf of the federal
government. The services that contractors perform run the gamut from low-level
janitorial work to background checks, and classified intelligence work. Service
contractors are doing the exact same work as federal employees; so although the
size of the federal civil service 3 has been reduced, the number of contractors
working on behalf of the government has skyrocketed.
In the Obama Administration, the era of service contracting has begun in
earnest. Government by service contract is now an enduring phenomenon, a part of
the trend of privatizing more and more governmental functions.4 Given the current
budget debate, it behooves us to further examine whether we should allow service
contractors to perform more functions, especially if a policy change would be costeffective.
Privatization, otherwise understood as the contracting out of government
services to the private sector, 5 has been hailed as a way for government to operate
1. See The President's Radio Address, 32 WEEKLY COMP. PRES. DOc. 126 (Jan. 27, 1996) ("We will
meet these challenges, not through big government. The era of big government is over.").
2. See PAUL C. LIGHT, ORG. PERFORM. INITIATIVE, RESEARCH BRIEF No. 2, THE NEW TRUE SIZE OF
Gov. 11 (2006), available at http://wagner.nyu.edu/performance/files/True Size.pdf [hereinafter LIGHT, NEW
TRUE SIZE].
3. The Federal Civil Service consists of all the official employees that work for the federal government.
See 5 U.S.C. § 2101 (1) (2006) ("[T]he 'civil service' consists of all appointive positions in the executive,
judicial, and legislative branches of the Government of the United States . . . .").
4. See Lawrence L. Martin, Performance Based Contractingfor Human Services: Lessons For Public
Procurement?, 2 J. Pub. PROCUREMENT 55, 55 (2002) ("[G]ovemments at all levels (federal, state and local)
today are making increased use of service contracting.")
5. See Steven J. Kelman, Contracting, in THE TOOLS OF GOVERNMENT: A GUIDE TO THE NEW
GOVERNANCE 282, 282 (Lester M. Salamon ed., 2002) ("Contracting ... is a business arrangement between a
government agency and a private entity in which the private entity promises, in exchange for money, to
deliver certain products or services to the government agency . . . ."); id. (calling the contracting the most
ubiquitous tool of government).
2012]
Abolishing the Prohibition on PersonalService Contracts
73
more efficiently.6 By making government leaner and meaner, contractors are now
the principle means of "reinventing government." 7 Besides efficiency, contractors
can also provide flexible services than can expand and contract with government
demand.8 The government is contracting out everything from clerical and sanitation
services work, to military, policing, and regulatory responsibilities. 9 Private firms
are hired by agencies to manage their personal systems, to build and run their
information technologies, and to do consulting work.' 0 Private contractors are
taking on larger and more sensitive roles in carrying out public functions. 1' They
are also doing the same work as federal employees, in the same offices, and
supervised by the same government managers. Simply put, privatization has
become a national obsession,12 due to our unshakeable belief that market
6. JOHN D. DONAHUE, THE PRIVATIZATION DECISION: PUBLIC ENDS, PRIVATE MEANS 57 (1989)
("Except for a handful of ideologues, few people would be very interested in privatization unless private
suppliers promised superior efficiency."); E.S. SAVAS, PRIVATIZATION: THE KEY TO BETTER GOVERNMENT
4-6, 119-230 (1987) ("[P]rivatization, properly carried out, generally leads to large increases in efficiency
while improving or at least maintaining the level and quality of public services....") ; Donald G.
Featherstun et al., State and Local Privatization: An Evolving Process, 30 PUB. CONT. L.J. 643, 651
(2001) ("The decision to contract out ... hinges on the expectation that cost savings and/or enhanced quality
will result."); Jody Freeman, Extending PublicLaw Norms Through Privatization, 116 HARV. L. REV. 1285,
1296 (2003) ("[P]rivatization is a means of improving productive efficiency: obtaining high-quality services
at the lowest possible cost....") [hereinafter Freeman, Extending Public Law Norms]; Jon D. Michaels,
Privatization's Pretensions, 77 U. CHI. L. REV. 717, 717-18 (2010) [hereinafter Michaels, Privatization's
Pretensions]; see also Stuart Butler, Privatization for Public Purposes, in PRIVATIZATION AND ITS
ALTERNATIVES 17, 22 (William T. Gormley, Jr, ed., 1991) (finding that the dominant argument for
contracting out is that it leads to "greater opportunity of finding a more innovative or less expensive service");
Mark H. Moore, Introduction, 116 HARV. L. REV. 1212, 1218 (2003) ("Much of the appeal of privatization is
based on claims that some form of privatization will increase the efficiency and effectiveness of
government."); David A. Super, Privatization,Policy Paralysis, and the Poor, 96 CALIF. L. REV. 393, 400
(2008) (finding that "economic efficiency" is privatization's key "measure of success").
7. Michaels, Privatization's Pretensions, supra note 6, at 717-18; see also DAVID OSBORNE & TED
GAEBLER, REINVENTING GOVERNMENT: How THE ENTREPRENEURIAL SPIRIT is TRANSFORMING THE PUBLIC
SECTOR, at xv-xxii (1992); Dan Guttman, Governance by Contract: Constitutional Visions; Time for
Reflection and Choice, 33 PUB. CONT. L.J. 321, 323, 329-30 (2004) [hereinafter Guttman, Governance by
Contract]; Michael J. Trebilcock & Edward M. lacobucci, Privatization and Accountability, 116 HARV. L.
REV. 1422, 1424-30 (2003); Paul R. Verkuil, Public Law Limitations on Privatization of Government
Functions, 84 N.C. L. REV. 397, 400 (2006).
8. See Steven J. Kelman, Achieving Contracting Goals and Recognizing Public Law Concerns: A
Contracting Management Perspective, in GOVERNMENT BY CONTRACT: OUTSOURCING AND AMERICAN
DEMOCRACY 153, 155 (Jody Freeman & Martha Minow eds., 2009) (describing the benefits of hiring
contractors to perform services outside of an agency's "core competencies"); Jon D. Michaels, Beyond
Accountability: The Constitutional,Democratic, and Strategic Problems with Privatizing War, 82 WASH. U.
L.Q. 1001, 1063-64 (2004) [hereinafter Michaels, BeyondAccountabilitv].
9. Michaels, Privatization'sPretensions,supra note 6, at 725.
3, 2011)
Wrong Jobs, N.Y. TIMES
(Apr.
Donahue,
Outsourcing the
10. John
http://www.nytimes.com/roomfordebate/2011/04/03/is-privatization-a-bad-deal-for-cities-andstates/outsourcing-the-wrong-jobs.
11. Michaels, Privatization's Pretensions, supra note 6, at 725; see also Jody Freeman & Martha
Minow, Introduction: Reframing the Outsourcing Debates, in GOVERNMENT BY CONTRACT supra note 8, at
7-8; Michaels, Beyond Accountability, supra note 8, at 1012-20; Sidney A. Shapiro, Outsourcing Government
Regulation, 53 DUKE L. J. 389, 389 (2003) ("The government has increasingly relied on private means to
achieve public ends, not only involving services to the public, but the origination and implementation of
regulatory policy as well ....
).
12. Gillian E. Metzger, Privatizationas Delegation, 103 COLUM. L. REV. 1367 1369 (2003); see also
Leonard
Gilroy,
Competition
Brings
Savings,
N.Y.
TIMES
(Apr.
4,
2011),
74
JournalofLegislation
[Vol. 38:1
competition makes private firms more efficient at producing services than
government agencies.13 Because of this belief, the federal government now spends
approximately $530 billion annually on a wide range of goods and services.14
As the privatization phenomenon has ballooned, there has been a corresponding
increase in service contractors. A long-standing ban on a particular type of service
contractors, called personal service contractors, however, is a phantom barrier to
this form of employment. A personal service contract is a contract that, by its
express terms, or as administered, makes the contractor employee appear to be a
regular government employee.1 6 Thus, a personal service contract is a contract that
creates a de facto employment relationship between the contractor employee and
the federal government. Personal service contracts allow a government supervisor
to directly control the contractor employees' work. Yet, the Federal Acquisition
Regulations (FAR)18 prohibits the use of these personal service contracts in an
effort to prevent agencies from circumventing the civil service laws. The FAR
mandates that all personal services be obtained by direct hire. 19
Due to the privatization phenomenon, government agencies are signing
contracts that specifically say they are not personal service contracts. But the
agencies are administering the contracts exactly like personal service contracts,
with federal government supervisors treating and supervising contractor employees
exactly like federal employees. Put slightly differently, contractor employees are
now often being used for the same positions as civil servants, creating a blended
workforce of contractors and federal civil servants. 20
The reason that defacto personal service contracts are so pervasive now is that
www.nytimes.com/roomfordebate/2011/04/03/is-privatization-a-bad-deal-for-cities-and-states/competitionbrings-savings ("For decades, [public sector managers] increasingly relied on contracting out for the delivery
of a wide range of services . . . .").
13.
See, e.g., KEVIN R. KOSAR, CONG. RESEARCH SERV., RL33777, PRIVATIZATION AND THE FEDERAL
GOVERNMENT: AN INTRODUCTION 6 (2006) ("[P]romoters of privatization believe that private firms can
provide goods and services 'better, faster, and cheaper' than government. Competition and the profit-motive,
they say, goad private firms to better produce products and services than government, which they construe as
a 'monopoly.'), available at http://www.fas.org/sgp/crs/misc/RL33777.pdf; Ronald A. Cass, Privatization:
Politics,Law, and Theory, 71 MARQ. L. REV. 449, 466-67 (1988); Harvey B. Feigenbaum & Jeffrey R. Henig,
The Political Underpinnings of Privatization: A Typology, 46 WORLD POL. 185, 194 (1994); Freeman,
Extending Public Law Norms, supranote 6, at 1299.
14. Office of Federal Procurement Policy, THE WHITE HOUSE, http://www.whitehouse.gov/omb/
procurementmission (last visited May 9, 2011).
15. See Russell N. Fairbanks,PersonalService Contracts,6 MIL. L. REV. 1, 1 (1959).
16. FAR 2.101 (2011).
17. Id.
18. Federal Acquisition Regulations System, C.F.R. tit. 48 (2011). The FAR is the principal set of rules
governing the purchasing of goods and services by agencies. The FAR has "the force and effect of
law," Davies PrecisionMachining, Inc. v. United States, 35 Fed. Cl. 651, 657 (1996), and nearly all agencies
must comply with FAR.
19. FAR 37.104(a) (2011).
20. Indeed, the lines separating contractors and government employees are being erased. The U.S.
Supreme Court has recently eroded the difference between contractors and federal employees further by
finding that contractor employees are subject to the same extensive preemployment background checks as
federal employees. See NASA v. Nelson, 131 S. Ct. 746 (2011) (holding that NASA's background checks for
contractors working with the agency do not violate any constitutional right to informational privacy that the
contractor employees may have).
2012]
Abolishing the Prohibitionon PersonalService Contracts
75
there has been a bipartisan trend to gut the federal workforce. Between 1990 and
2002, over 418,000 civil service jobs were cut.21 This has created a skeletal
workforce at federal agencies, forcing them to hire personal service contractors to
fill the void. 22
With more personal service contractors, federal courts and the Equal
Employment Opportunity Commission (EEOC) are taking the affirmative step of
letting contractor employees sue their government supervisors for claims of
employment discrimination, even though there is no formal employment
relationship between these two parties. Thus, courts are often finding that the
federal government is a contractor employee's joint employer. Because government
supervisors are exercising so much supervisory control over contractor employees'
work, these contractor employees are being deemed de facto government
employees when their employment rights are violated.
This Article argues that the personal service prohibition should be abolished
because it is an inefficient policy that does not serve its intended purpose. Instead of
a government supervisor being able to directly monitor its contractor employees,
the prohibition forces government supervisors to tell a contract supervisor what the
contractor employee is supposed to do. Thus, the prohibition creates an unnecessary
middleman. If the prohibition was lifted, government supervisors will be able to
more efficiently and effectively supervise their contractor employees.
The prohibition's original purpose was to prevent service contractors from
being construed as actual government employees: that is, employees who could
obtain government benefits like retirement. Yet, courts have unanimously held that
contractors can never be deemed to be actual civil servants.23 Becoming a civil
servant is a formal process, which can never happen accidentally; this is in contrast
to how courts are implying that the government is a joint employer for purposes of
employment laws.
If the prohibition is lifted, though, limits must be set on what functions and jobs
can be contracted out. The first limit is that inherent governmental functions-those
functions that are so intimately related to the public interest as to require
performance by federal employees 24-should never be contracted out. Just
enforcing this rule has been difficult. For instance, in every intelligence and
counterterrorism agency, contractors are performing inherently governmental
functions.25 It seems, then, that the most important inquiry for regulating personal
service contracts is to determine what jobs are inherently governmental and mission
critical, and to make sure those positions are not outsourced. The next step is to
figure out which jobs should be contracted out due to potential cost-savings.
The prohibition on personal services obstructs this regulatory process since a
blanket ban on personal service contracts prevents lawmakers from creating
effective rules for personal service contracts. Proper regulation and control of
21.
22.
23.
24.
25.
See infra note
See infra note
See infra note
See infra note
See infra note
31 and accompanying text.
33 and accompanying text.
79 and accompanying text.
223 and accompanying text.
247 and accompanying text.
76
JournalofLegislation
[Vol. 38:1
personal service contractors-not an all-out ban-is the best way to harness the
power of private markets, while making sure that service contractors are properly
managed.
This Article does not take a normative position on the debate over the size of
the Federal Civil Service. Generally, progressives favor a robust civil service,
whereas conservatives favor less government in general. This Article assumes that
the frequent use of service contractors is not going to change. Contractors are
already used heavily, and the current prohibition does not seem to create a
meaningful hurdle to their use. The purpose of this Article is to stimulate debate
about how to more effectively regulate service contractors.
This Article proceeds in four Parts. Part I examines the explosion of personal
service contracting, and how agency personnel ceilings have contributed to this
phenomenon. Agencies are purposely working around their personnel limits by
hiring service contractors. Part II examines personal service contracts, and the
problems of distinguishing personal service contracts from nonpersonal service
contracts. This Part then examines case studies in which agencies violated the
prohibition. Part III examines why courts are allowing contractor employees to sue
their government supervisors as joint employers. This Part also examines the
relationship between the personal service prohibition and these joint employer suits
by contractor employees. Finally, Part IV offers solutions to fixing this broken
service-contracting regime. Rather than insourcing more government workers,
which would be a politically impossible task, I offer a pragmatic solution: Congress
and the White House should abolish the personal service prohibition (except for
inherent governmental functions), then regulate the specific jobs that can and
cannot be held by service contractors.
I. THE EXPLOSION OF PERSONAL SERVICE CONTRACTS
The amount of tax money the federal government spends on service contracts is
staggering. In 2009, the federal government spent nearly $300 billion on
professional services, which was awarded through some 750,000 contracts. 26
These expenditures have supported a ballooning of the number of contractors
working for the government. Between 1990 and 2002, approximately 727,000
contractor jobs were created to support the Federal Government.27 But from 20022005, 2,466,000 contractor jobs were created, for a total of 7,634,000 contract jobs
in 2005.28 The increase in contract jobs suggests that many of these new jobs
26. GREGORY SANDERS ET AL., CTR. FOR STRATEGIC & INT'L STUDIES, STRUCTURE AND DYNAMICS OF
THE U.S. FEDERAL PROFESSIONAL SERVICES INDUSTRIAL BASE 1995-2009, at 8 (2010), available at
http://csis.org/files/
publication/ 1011 12 fps report 2010.pdf.
27. PAUL C. LIGHT, BROOKINGS INST., CTR. FOR PUB. SERV., FACT SHEET ON THE NEW TRUE SIZE OF
GOVERNMENT 5 tbl.2 (2003), available at www.brookings.edu/-/media/Files/rc/articles/2003/0905
politics light/light20030905.pdf [hereinafter LIGHT, FACT SHEET].
28. LIGHT, NEW TRUE SIZE, supra note 2, at 11. Indeed, by 2005 over 60 percent of all federal
procurement dollars were spent on service contracts, a percentage that has been increasing. See Steven L.
Schooner & Collin D. Swan, Suing the Government as a 'Joint Employer' - Evolving Pathologies of the
2012]
Abolishing the Prohibitionon PersonalService Contracts
77
involve "the outrightpurchase of labor, whether to build roads, manage parks and
forests, or manage public outreach, technology services, financial systems, and
personnel." 29 Instead of manufacturing discrete goods like guns or ships,
contractors are now increasingly working side-by-side with federal civil service
employees, performing the exact same duties.
So how did we get to this contracted out government that relies on contractors
to perform governmental services? Professor Steven Schooner explains: "[Iln the
name of 'new public management,' the Clinton administration aggressively turned
to the private sector as it trumpeted a massive Government downsizing
initiative.... Federal employee rolls ... were reduced out of a political desire to
'end the era of big Government."' 30 Between 1990 and 2002, over 418,000 federal
civil servant jobs were cut as part of this bipartisan effort.31 Now agencies just have
a skeletal workforce that lacks the in-house capacity to perform their broad range of
duties. 32
With a skeletal federal workforce, it is no surprise then that agencies have had
to rely on personal service contractors to fulfill their programmatic mandates. 33
And it is even less surprising that with the gutted workforce, contractor employees
are now performing the same jobs as civil servants.34
A. PersonnelCeilings Encourages the Use of Contractors
One factor that has increased the use of personal service contractors is federal
Blended Workforce, 52 Gov'T CONTRACTOR 341 (2010); see also SANDERS supra note 26, at 8.
29. LIGHT, NEW TRUE SIZE, supranote 2, at 9 (emphasis added).
30. Schooner & Swan, supranote 28, %341; see also GORE, supranote 7.
31. LIGHT, FACT SHEET, supra note 27, at 5 tbl.2; Paul C. Light, Outsourcing and the True Size of
Government, 33 PUB. CONT. L.J. 311, 312 (2004) [hereinafter Light, Outsourcing]. This effort to cut the size
of the federal civil service and to privatize in general has enjoyed a broad bipartisan support. See Daniel
Guttman, Public Purpose and Private Service: The Twentieth Century Culture of Contracting Out and the
Evolving Law of Diffused Sovereignty, 52 ADMIN. L. REv. 859, 861 (2000) [hereinafter Guttman, Public
Purpose] ("Whether the term used is 'privatization,' 'reinvention,' or 'contracting out,' the past decade has
been marked by bipartisan agreement on the need to reform and reduce 'Big Government."'); see also
Guttman, Governance by Contract,supra note 7, at 323; Steven L. Schooner, Competitive Sourcing Policy:
More Sail Than Rudder?, 33 PUB. CONT. L.J. 263, 276-77 (2004).
32. Schooner & Swan, supra note 28, 341; see also E-mail from Steven L. Schooner, Professor at
George Washington University Law School, to author, (Mar. 2011) (on file with author) (characterizing AID,
NASA, and DHS as "agencies that are so outsourced that they're basically skeletal structures").
33. See, e.g., Steven L. Schooner, ContractorAtrocities at Abu Ghraib: Compromised Accountability in
a Streamlined, Outsourced Government, 16 STAN. L. & POL'Y REv. 549, 559 (2005) ("[G]iven the
administration's competitive sourcing initiative, the most rapidly growing area of procurement activity lies in
service contracting. Successful service contracts are difficult to draft and, more importantly, require
significant resources to administer or manage."); Steven L. Schooner & Daniel S. Greenspahn, Too
Dependent on Contractors? Minimum Standardsfor Responsible Governance, J. CONT. MGMT., Summer
2008, at 12; Collin D. Swan, Note, Dead Letter Prohibitions and Policy Failures: Applying Government
Ethics Standardsto PersonalServices Contractors,80 GEO. WASH. L. REv. 668, 680-83 (2012).
34. Schooner & Swan, supra note 28, 341; see also LIGHT, NEW TRUE SIZE, supra note 2, at 9 ("For
example, the Transportation Security Administration uses contracts to manage virtually all aspects of the
hiring, training, and payroll process for its baggage and passenger screeners. All of these jobs could have been
placed in the civil service, which is bow almost these services are provided in other departments and
agencies.").
78
Journal of Legislation
[Vol. 38:1
agency personnel ceilings. These ceilings set the maximum number of civil servants
an agency can employ. They are enacted with the hope that natural attrition will
decrease employment levels at agencies. 35
In trying to end the era of big government, President Clinton helped pass
legislation that required a ten percent reduction in the federal workforce.36 One part
of the act required the President to "take appropriate action" to ensure that there
was no increase use of service contractors because of the act.37 Yet, no appropriate
action was ever taken. One report found that the shrinking number of federal
employees caused agencies to fill their positions with contractors to fulfill the same
tasks. According to this report, many agencies could have saved millions by
performing these functions in house, but personnel ceilings forced them to contract
out.39 Thus, the actual size of government was not reduced by personnel ceilings.40
When agencies are required to carry out programs but cannot hire civil servants
35. Michaels, Privatization'sPretensions, supra note 6, at 752; see also Guttman, Governance by
Contract, supra note 7, at 326; Guttman, Public Purpose, supra note 31, at 889. Under federal law, each
agency and the military can only employ the number of employees as Congress appropriates for. See 5 U.S.C.
§ 3101 (2006).
36. Federal Workforce Restructuring Act of 1994, Pub. L. No. 103-226, 108 Stat. 111 (1994) (codified
as amended in scattered sections of 5 U.S.C.); Jeff Gerth, As Payroll Shrinks, Government's Costs For
Contracts Rise, N.Y. TIMES, Mar. 18, 1996, at A13; see also AL GORE, COMMON SENSE GOVERNMENT:
WORKS BETTER AND COSTS LESS 291-92 (1995) (explaining that the Clinton Administration cut more federal
jobs than mandated by the statute).
37. Federal Workforce Restructuring Act of 1994, P.L. 103-226, § 5(g), 108 Stat. 115 (codified at 5
U.S.C. § 3101 (2006)).
38. OFF. OF MGMT. & BUDGET, SUMMARY REPORT OF AGENCIES' SERV. CONTRACT. PRACTICES (1994),
reprintedin 61 FED. CONT. REP. (BNA) 58 (Jan. 17, 1994) (surveying seventeen federal agencies and finding
that "[glovemment reliance on contracted services is increasing and many agencies are being required to do
more with less staff .. . Agencies often assume that traditional government personnel will not be authorized
and therefore, there is no alternative but to contract for needed services.").
39. Id; GOV'T ACCOUNTABILITY
OFF.,
GAO/T-GGD-95-131,
GOVERNMENT CONTRACTORS: AN
OVERVIEW OF THE FEDERAL CONTRACTING-OUT PROGRAM 6 (1995) (statement of L. Nye Stevens)
("[P]ersonnel ceilings . . . frequently have the effect of encouraging agencies to contract out regardless of the
results of cost, policy, or high-risk studies."), available at http://archive.gao.gov/t2pbatl/153858.pdf; see also
U.S. GOV'T ACCOUNTABILITY OFF., GAO/T-NSIAD-97-1 10, DEFENSE OUTSOURCING: CHALLENGES FACING
DOD AS IT ATTEMPTS TO SAVE BILLIONS IN INFRASTRUCTURE COSTS 10 (1997) (statement of David R.
Warren) ("[T]he goal of downsizing the federal workforce is widely perceived as placing DoD in a position of
having to contract for services regardless of what is more desirable and cost effective."); NAT'L ASS'N OF
PUB. ADMIN., RENEWING HUD: A LONG-TERM AGENDA FOR EFFECTIVE PERFORM. (1994) (finding that
"[b]ecause of staff shortages, (the Department of Housing and Urban Development) HUD has relied on
contractor assistance in instances where considerations of efficiency and economy would favor performance
in-house."); Gerth, supra note 36, at A13.
40. Michaels, Privatization's Pretensions, supra note 6, at 752-53; see also Dan Guttman, Inherently
Governmental Functions and the New Millennium: The Legacy of Twentieth-Century Reform, in MAKING
GOVERNMENT MANAGEABLE: EXECUTIVE ORGANIZATION AND MANAGEMENT IN THE TWENTY-FIRST
CENTURY 40, 41 (Thomas H. Stanton & Benjamin Ginsberg, eds., 2004) .") [hereinafter Guttman, Inherently
Governmental Functions] (noting the "bipartisan belief that the polity would indulge in the fiction that Big
Government does not grow if the civil service does not"); Verkuil, supra note 7, at 400 ("In the United States,
at least, privatization . .. is concerned less with the amount of government expenditures than with where to
place responsibility for the activity. The size of government, viewed as a percentage of the Gross Domestic
Product, could well grow in a privatized environment .... ); LIGHT, NEW TRUE SIZE, supra note 2, at 2 (The
government used contracts "to hide its true size, thereby creating the illusion that it is smaller than it actually
is . . . encourag[ing] the public into believing that it truly can get more for less . . . .").
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because of personnel ceilings, they hire contractors instead.41 Service contractors
supply the labor that the agency cannot hire directly, even if this backfilling is
42
prohibited. These contracts are colloquially called "body shop contracts," or to
use the politically correct term, "staff augmentation contracts." 4 3 They supply
agencies with contractor "bodies" who work side-by-side with government
employees, and perform the same tasks. 44 This increase of service contractors has
created a blended workforce of federal employees and contractors, in which the
practical distinctions between the two have blurred. 45
B. Workarounds as Analytical Framework
The use of personal service contracts can be thought of as a workaround46
(read: end-run around) to the civil service laws. As Professor Jon Michaels
explains, government officials "turn to privatization for more than the
customary .. . objective of providing the public with the same goods and services
more efficiently than the government bureaucracy can." 47 Rather, contracting out
41. AM. FED'N OF GOV'T EMP., Back to the Future: Arbitrary Cuts in Civil Servants, in AFEG 2011
ISSUE PAPERS 31 ("Using civil servants and contractors, agencies carry out the programs that are established
by Congress. If Congress wants agencies to use significantly fewer civil servants, then Congress must either
eliminate or weaken those programs. As proven by the Federal Workforce Restructuring Act, if agencies can't
use civil servants to carry out programs, they will simply contract out those programs, even if such backfilling
is prohibited."), availableat http://www.afge.org/Index.cfm/201 IlssuePapers.DOCX?Fuse-document
&documentlD=2642&FileID=2787; see also GEN. ACCOUNTING. OFF., FPCD-81-54, IMPROVING THE
CREDIBILITY AND MANAGEMENT OF THE FEDERAL WORK FORCE THROUGH BETTER PLANNING AND
BUDGETARY CONTROLS, 5 (1981) ("[T]he use of personnel ceilings reinforces the misconception that
containing the staffing level of the direct Federal work force controls the cost of Government."); cf Guttman,
Inherently Governmental Functions, supra note 40, at 41 ("Since World War II bipartisan limits on the
numbers of federal employees have, like a hydraulic force, caused the government to fuel its growth through
reliance on third parties."); Light, Outsourcing,supra note 31, at 312 (noting that promises of reducing the
size of the federal workforce "were only true using the narrowest definition of Government as being
composed solely of full-time equivalent civil servants"). The reason this happens is that the public desires the
same amount of services while having reduced taxes. DONAHUE, supra note 6, at 31-32; cf Chester A.
Newland, Public PersonnelAdministration: Legalistic Reforms vs. Effectiveness, Efficiency, and Economy, 36
PUB. ADMIN. REV. 529, 534-35 (1976) (finding that the conflicting realities of legally mandated program
responsibilities and arbitrarily low personnel ceilings often make efficiency in government impossible).
42. Kathleen Clark, Ethicsfor an Outsourced Government, ADMIN. CONF. U.S., 29 (October 6, 2010),
http://www.acus.gov/wp-content/plugins/download-monitor/download.php?id=23.
43. Id
44. See U.S. GOV'T ACCOUNTABILITY OFF., GAO-08-621T, DEFENSE ACQUISITIONS: DOD's
INCREASED RELIANCE ON SERVICE CONTRACTORS EXACERBATES LONG-STANDING CHALLENGES 4 (2008).
45. See Schooner & Greenspahn, supranote 33, at 16 ("Despite longstanding legal and policy objections
to the use of personal services contracts, we have witnessed an explosive growth in what are referred to as
'body shop' or 'employee augmentation' arrangements, through which the government, as a matter of practice
and necessity, hires contractor personnel to replace, supplement, or work alongside civil servants or members
of the armed forces. . . . Civil servants work alongside, with, and at times, for contractor employees who sit in
seats previously occupied by government employees. Unfortunately, no one stopped to train the government
workforce on how to operate in such an environment, referred to as a 'blended workforce.').
46. Workarounds are defined as "government contracts ... that provide the outsourcing agency with the
means of achieving distinct public policy goals that ..would be impossible or much more difficult to attain in
the ordinary course of nonprivatized public administration." Michaels, Privatization'sPretensions,supranote
6, at 719.
47. Id. at 718-19.
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can be used as way to evade, or work around, personnel limitations.48
For example, an agency head might be at odds with its own federal employees,
who may resist the agency head's policy goals. 4 9 Using personal service contractors
to bypass these obstinate civil servants may be tempting. Another example of
workarounds has to do with military contractors. Heavily used in our recent
engagements in Iraq and Afghanistan, military contractors filled the void when the
Pentagon needed many more troops than they had available. Instead of scaling back
the scope of our military engagements, or reinstituting a civilian draft, the
government hired an army of contractors.5 0
II. FEDERAL ACQUISITION REGULATIONS' INEFFICIENT PROHIBITION OF PERSONAL
SERVICE CONTRACTS
Before codification,51 the prohibition of personal service contracts was
originally promulgated by the Comptroller General52 in the early part of the 1900s
through advisory opinions to executive agencies.53 Yet the modem prohibition, as
48. See Donald Klingner, Reinventing Public PersonnelAdministration as Strategic Human Resource
Management,22 PUB. PERSONNEL MGMT. 565, 569 (1993) (finding that contracting out is "attractive because
they enable personnel administrators to reduce benefit costs, and to circumvent personnel ceilings and civil
service rules").
49. Michaels, Privatization'sPretensions,supranote 6, at 746.
50. See, e.g., P.W. SINGER, CORPORATE WARRIORS: THE RISE OF THE PRIVATIZED MILITARY INDUSTRY
63-64 (2003); Michaels, Beyond Accountability, supra note 11, at 1004 & n.4. Right now there are more total
contractors in Iraq than service members, and roughly a 1-to-I ratio of contractors to military personnel in
Afghanistan. MOSHE SCHWARTZ, CONG. RESEARCH SERV., R40835, THE DEPARTMENT OF DEFENSE'S USE OF
PRIVATE SECURITY CONTRACTORS INAFGHANISTAN AND IRAQ: BACKGROUND, ANALYSIS, AND OPTIONS FOR
CONGRESS 8, 9 fig.3, 11, 12 fig.7 (2011), available at http://www.fas.org/sgp/crs/natseclR40835.pdf. One
category of these military contractors that is especially important is security contractors-armed contractors
that provide support during combat or stability operations. The staggering growth of security contractors in
these war zones looks like a workaround. See Michaels, Privatization'sPretensions, supra note 6, at 721-22,
753-56. In Afghanistan, for instance, as of December 2010, there were nearly nineteen thousand private
security contractors working for the DOD, the highest number ever recorded. SCHWARTZ, supra, at ii. These
private security contractors perform nearly identical work as military personnel and their work is controlled
by army supervisors. Consider also that contractor deaths now represent over twenty-five percent of all U.S.
fatalities in Afghanistan and Iraq. Steven L. Schooner & Collin D. Swan, Contractors and the Ultimate
Sacrifice, SERVICE CONTRACTOR., Sept. 2010, at 16, available at www.govexec.com/pdfs/092210kpl.pdf; see
also Steven Schooner, Why ContractorFatalities Matter, PARAMETERS, Autumn 2008, at 78.
51. The personal services prohibition was first codified in 1959 for civilian agencies and in 1968 for
defense agencies. See Miscellaneous Amendments to Armed Services Procurement Regulations, 33 Fed. Reg.
19,900, 19,929 (Dec. 28, 1968). The modem form of the prohibition was codified when the FAR was created
in 1983. See Establishing the Federal Acquisition Regulations, 48 Fed. Reg. 42,102, 42,366 (Sept. 19, 1983)
(to be codified at 48 C.F.R. ch. 1).
52. The Comptroller General, as the head of the Government Accountability Office, has authority to
"investigate all matters related to the receipt, disbursement, and use of public money" to ensure that public
money is being used effectively. 31 U.S.C. § 712 (2006); see also 31 U.S.C. § 3554(b) (1) (Supp. III 2009)
(authorizing the Comptroller General to review federal contracts to "determine whether the solicitation,
proposed award, or award complies with statute and regulation").
53. Letter from Acting Comptroller Gen. Elliott to the Chairman, Soc. Sec. Bd., 17 Comp. Gen. 300,
301 (1937) ("The general rule is that purely personal services may not be engaged by the govemment on a
nonpersonal service contract basis but are required to be performed by Federal personnel under Government
supervision."); Letter from Comptroller Gen. Warren to the Sec'y of the Army, 32 Comp. Gen. 427, 430
(1953) ("[[]t would be unreasonable in the extreme to presume that the Congress, while imposing a ceiling on
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Abolishing the Prohibitionon PersonalService Contracts
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codified in the FAR, was formulated in response to litigation by a federal employee
labor union who alleged that NASA's use of independent contractors violated
personnel statutes. 54 This Part will explain the policies behind the personal services
prohibition, why the prohibition is not being enforced or followed, and why the
prohibition is ineffective.
A. Defining Service Contracts
What is a service contract anyway? 55 The FAR distinguishes between
nonpersonal and personal service contracts.56 A "personal service contract" is "a
contract that, by its express terms or as administered makes the contractor personnel
appear to be, in effect, Government employees." 57 Government agencies cannot
"award personal services contracts unless specifically authorized by statute." 58 The
FAR defines a personal service contract in term of the employer-employee
relationship: "A personal services contract is characterized by the employeremployee relationship it creates between the [federal] Government and the
contractor's personnel." 59 Under the FAR, an "employer-employee relationship"
arises when "contractor personnel are subject to the relatively continuous
supervision and control of a Government officer or employee." 60
Of course, context is crucial for distinguishing between personal and
the number of graded civilian employees that could be employed in the Department of Defense, intended to
authorize the procurement by contract from outside sources of services which would be performed by
employees of the type involved but for the personnel ceiling. Otherwise the limitation would be
meaningless.").
54. See Lodge 1858, Am. Fed'n of Gov't Emps. v. Adm'r NASA, 424 F. Supp. 186, 190 (D.D.C. 1976),
aff'd in part,vacated inpart, 580 F.2d 496 (D.C. Cir. 1978).
55. FAR 37.101 (2011) ('Service contract' means a contract that directly engages the time and effort of
a contractor whose primary purpose is to perform an identifiable task rather than to fumish an end item of
supply.").
56. Id.
57. FAR 2.101 (2011).
58. 48 C.F.R. § 37.104(b) (2011). One issue with the "prohibition" is that there are so many statutory
exceptions. See, e.g. 50 U.S.C. § 403j(a)(1) (2006) (providing CIA with personal services contracting
authority); 22 U.S.C. § 2396(a)(3) (2006) (authorizing the Agency for International Development to execute
personal services contracts); 48 C.F.R. 437.104 (2011) (finding that USDA has a special statutory authority
under 7 U.S.C. § 2225 (2006) to contract for personal services); 48 C.F.R. 637.104-70 (2011) (summarizing
statutory authorities available to the Department of State for personal services). One major statutory exception
authorizes agencies to use personal service contracts to hire temporary experts, consultants or an organization.
5 U.S.C. § 3109(b) (2006). Whether an agency is authorized to use personal service contracts under section
3109 has been an important consideration in multiple cases. Compare Point Elementary Sch. Teachers Ass'n
v. Fed. Labor Relations Auth., 855 F.2d 936, 940-41 (2d Cir. 1988) (finding that the Army's use of personal
service contracts in hiring of civilian teachers was unlawful hiring practice since the Army did not have the
required statutory authorization to sign such contracts under 5 U.S.C. § 3109), with Techniarts Eng'g v.
United States, 51 F.3d 301, 304-05 (D.C. Cir. 1995) (finding that the United States Information Agency
(USIA) could enter into personal service agreements needed to provide for televised news broadcasts to Cuba
since the USIA had express statutory authorization to enter into service contracts under section 3109).
59. 48 C.F.R. § 37.104(a) (2011).
60. Id. §37.104(c) (1) ("[G]iving an order for a specific article or service, with the right to reject the
finished product or result, is not the type of supervision or control that converts an individual who is an
independent contractor (such as a contractor employee) into a Government employee.").
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nonpersonal contracts:
Each contract arrangement must be judged in the light of its own facts and
circumstances, the key question always being: Will the Government
exercise relatively continuous supervision and control over the contractor
personnelperforming the contract? The sporadic, unauthorized supervision
of only one of a large number of contractor employees might reasonably be
considered not relevant, while relatively continuous Government
supervision of a substantial number of contractor employees would have to
be taken strongly into account. 61
Although personal service contracts are prohibited, nonpersonal service
contracts are encouraged.62 Nonpersonal contracts do not create employeremployee relationships between the government and contractor employees because
the government exercises little supervision and control over this type of contractor
employee.63 To use the common law name, nonpersonal service contractors are
considered independent contractors. Professor Schooner describes this distinction in
terms of functions: "In a classic (nonpersonal) services contract, the government
delegates a function to a contractor. Conversely, in personal services contracts, the
government retains the function, but contractor personnel staff the effort." 64
The key to distinguishing between nonpersonal services contracts and personal
services contracts is analyzing how the contract is actually performed. Most
contracts explicitly state they are nonpersonal services contracts, but they are
solicited, bid upon, and performed as personal service contracts.65 Thus, in addition
to reading the contract to see if it is for personal services, one has to examine the
actual behavior of the contracting parties to determine if personal services are being
provided. Obvious indicators of a personal service contract are when a
government supervisor can make hiring, firing, promotion, or compensation
decisions for contractor employees; less blatant indicators are those listed in the
61. Id. § 37.104(c) (2) (emphasis added). The FAR lists six factors as a guide to assess whether the
contract is for personal services, all centering around whether the government intimately controls the
contractor's work: "(1) Performance on site; (2) Principal tools and equipment furnished by the Government;
(3) Services are applied directly to the integral effort of agencies or an organizational subpart in furtherance of
assigned function or mission; (4) Comparable services, meeting comparable needs, are performed in the same
or similar agencies using civil service personnel; (5) The need for the type of service provided can reasonably
be expected to last beyond one year; and (6) The inherent nature of the service, or the manner in which it is
provided reasonably requires directly or indirectly, Government direction or supervision of contractor
employees in order to -(i) Adequately protect the Government's interest; (ii) Retain control of the function
involved; or (iii) Retain full personal responsibility for the function supported in a duly authorized Federal
officer or employee." Id. § 37.104(d). Further, case law establishes that the mere award of a contract to
individuals, instead of awarding to a business, does not by itself establish a personal services contract.
Monarch Enterprises, Inc., Comp Gen Dec B-233303, 89-1 CPD 222, 1989 WL 240497, at *7 (1989).
62. Id. § 37.602(b).
63. Id.§37.101.
64. Schooner & Greenspahn, supra note 33, at 16.
65. Thomas A. Marcinko, Personal Services Contracts: Should Prohibition be Repealed?, CONT.
MGMT, July 2009, at 50, 52.
66. Id.
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FAR. 67 As one commentator points out:
The more the government supervisor limits her interaction to the
contractor's management, the less likely it will be that the contract is for
personal services. Conversely, the more the government employee
interferes directly with the contractor employees, the more likely it will be
that the contract is for personal services.
B. Problems DistinguishingPersonalService ContractsFrom NonpersonalService
Contracts
Despite the clear policy that personal service contracts are banned, this policy
is practically unenforceable. 69 As far back as 1959, one procurement specialist
explained:
The rule that personal services for the Government must be performed
only by Government employees is not difficult to enunciate. The rub comes
in finding out what it means. What are personal services? Are personal
services always personal, or are they by some sort of alchemy nonpersonal
when they are unobjectionable? What is wrong with personal services
being performed by independent contractors anyway? What is the evil
intended to be cured by the rule? Is the law . .. sufficiently precise . . .?0
Indeed, it is nearly impossible to predict whether a particular contract as
71
administeredoffends the policy against personal service contracts.
In contrast, it appears quite easy to tell whether a contract violates the
prohibition just by examining the four corners of the contract itself. The
Government Accountability Office (GAO) has authority to review federal
contractor bid protests and reject contracts that authorize personal service
contracts. 72 Yet, these GAO opinions almost universally find that the contract is not
67. Id.
68. Id. at 52-53.
69. Swan, supranote 33, at 678-79.
70. Fairbanks, supra note 15, at 5 (emphasis added).
71. Id. at 39-40. A big source of this difficulty derives from the fact that Congress has never explicitly
prohibited the procurement of personal services. Id. at 6. Instead, Congress recognized early on that such
procurement was necessary. Id. Fairbanks cites both an 1861 congressional statute, Act of 2 March 1861, ch.
84, § 10, 12 Stat. 220, and the Administrative Expenses Act of 1946, ch. 744, § 9(a), 60 Stat. 806, 809
(codified as amended at 41 U.S.C. § 5 (2006)), as evidence of Congress's acceptance of personal services. See
Fairbanks, supra note 15, at 6-7. These statutes, demonstrate that Congress "has repeatedly recognized the
need for the performance of personal services for the Government by persons not engaged pursuant to the
civil service and classification laws, and indeed has placed the contracts for such services in a preferred
category." Id. at 8.
72. See 4 C.F.R. § 21 (2011). For our purposes, the GAO only reviews whether the contract solicitation
violates the personal services rules. Steven W. Feldman, Personal Service Contracts, 2 GOVERNMENT
CONTRACT AWARDS: NEGOTIATION AND SEALED BIDDING § 25:25 (2011) ("If a firm alleges that the agency
is improperly administering the contract in violation of these rules, the GAO will decline jurisdiction because
84
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one for personal services, 73 which makes sense because the agency is not going to
openly state in the contract that it is violating the prohibition. The more difficult
issue, however, is figuring out whether a contract issued as a nonpersonal service
contract is being administered as a personal service contract, a question the GAO
has no authority to review. 74
C. The Prohibitionis an Inefficient Policy
The prohibition recently suffered another blow from a report by the Acquisition
Advisory Panel (AAP), a research panel established by Congress to investigate
government contracting. 75 As the AAP notes, one senior official testified that "we
have now a definition and a rule based on a ban ... on personal service contracts
that's been with us for years and years and doesn't take proper recognition of where
we are as a work force today." 76 As agencies routinely rely on service contracts to
replace their depleted government staffs, the prohibition against personal service
contracts is now seen as a dead letter-a failed policy that is seldom enforced and
in need of reform. 77
The AAP concluded that the existing FAR prohibition on personal service
contracts, "which focuses upon the type of supervision provided to contractor
the issue relates to contract administration and not contract formation."); see also 4 C.F.R. § 21.5 (2011)
("The administration of an existing contract is within the discretion of the agency.").
73. See, e.g., Carr's Wild Horse Center, B- 285833 (Comp. Gen.), 2000 CPD P 210, 2000 WL 1474096,
at * 1 (2000) (finding that a solicitation will not result in impermissible personal services contract where the
government will not exercise continuous supervision and control over contractor personnel performing the
contract); Danoff & Donnelly; Kensington Associates, B- 243368 (Comp. Gen.), B- 243368.2, 91-2 CPD P
95, 1991 WL 149681, at *1 (1991) (requiring that contractor obtain approval for employment of key
personnel does not create a personal services contract); Americorp, B- 231644 (Comp. Gen.), 88-2 CPD P
331, 1988 WL 227965, at 1* (1988) (finding that where solicitation provides for the contractor to monitor
employees and ensure that its employees meet the requirements of the solicitation, any contract awarded
under the solicitation will not result in an illegal personal services contract); Logistical Support, Inc., B224592 (Comp. Gen.), 86-2 CPD P 709, 1986 WL 64523, at *1 (1986) (finding that minimum manning
requirement in solicitation for fixed-price services contract does not create a personal services contract where
the contractor is required to maintain control and supervision of its employees); McGregor FSC, Inc., B224634 (Comnp. Gen.), 86-2 CPD P 537, 1986 WL 64284, at *1 (1986) (finding that an agency contract for
counseling services does not create illegal employer-employee relationship where the services will not be
subject to direct government supervision and adequate direction is provided to the contractor through detailed
written specifications contained in the solicitation's statement of work); Work System Design, Inc., B213451 (Comp. Gen.), 84-2 CPD P 226, 1984 WL 46571 at *1 (1984) (finding that an agency contract for
technical support services does not create illegal employer-employee relationship where the services rendered
do not require government direction or supervision of contractor employees and adequate direction is
provided through written technical directions issued under the contract).
74. Peter J. Ritenburg, Contractingfor the Services ofSpecific Individuals: Avoiding "PersonalServices
Contracts," 10 No. 2 NASH & CIBINIC Rep. 10, Feb. 1996, (finding that contracting for personal services is
complex, and that nowhere is the complexity more apparent than in the area of personal/nonpersonal services
contracting; also adding that the confusing FAR coverage adds to the complexity).
75. See National Defense Authorization Act for Fiscal Year 2004, Pub. L. No. 108-136, § 1423, 117
Stat. 1392, 1669 (2003).
76. REPORT OF THE ACQUISITION ADVISORY PANEL TO THE OFFICE OF FEDERAL PROCUREMENT POLICY
AND THE UNITED STATES CONGRESS 400 (2007), availableat www.acquisition.gov/comp/aap/
finalaapreport.html [hereinafter ACQUISITION ADVISORY PANEL] (testimony of William Woods).
77. See Schooner & Swan, supra note 28, 1 341.
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Abolishing the Prohibition on Personal Service Contracts
85
personnel in an effort to preclude the creation of an employer-employee
relationship, is not compelled by applicable statutes and case law."78 The AAP
found that based on the statutory definition of a federal employee and the
constitutional definition of a federal officer, personal services contracts cannot
create actual employer-employee relationships between the government and
contractor employees.79 In other words, service contractors can never claim that
they are actual government employees who are entitled to benefits.
Moreover, the AAP found that the prohibition adds unnecessary inefficiencies
and costs for both agencies and contractors.80 The prohibition chokes off the ability
of government supervisors to properly manage contractor employees. 81 Close
supervision and control by a government supervisor over a contractor employee
82
increases the risk that the contract will be deemed a personnel service contract.
Thus, the prohibition forces agencies to create complex and inefficient supervisory
schemes: government supervisors are told not to supervise contractors directly;
78.
ACQUISITION ADVISORY PANEL, supranote 83, at 404.
79. Id. The AAP finds that "a contract cannot confer employee status upon contractor personnel in the
absence of an appointment to the federal service." Id. at 402. Their argument is both constitutional and
statutory. The Appointments Clause provides that "The President shall appoint all officers . .. unless
Congress vests such authority in the department heads or courts." U.S. CONST. art. 11,§ 2, cl. 2. Thus, the
Supreme Court confirmed that an individual had to be appointed to a government position before she could
become a government officer. See United States v. Smith, 124 U.S. 525, 531-32 (1888); United States v.
Mouat, 124 U.S. 303, 307 (1888). Courts have also interpreted the Appointment's Clause to require that
regular federal employees must be appointed by government officers, and not through contracts. See, e.g.,
Baker v. United States, 614 F.2d 263, 267 (Ct. Cl. 1980).
As for statutory arguments, courts have stringently interpreted the official definition of an employee under 5
U.S.C. §2105 (2006). Three requirements must be satisfied for a person to be deemed a federal employee: (1)
appointment by an authorized federal employee or officer, (2) performance of a federal function, and (3)
supervision by a federal employee or officer. Id. §2105(a); see Costner v. United States, 665 F.2d 1016, 1020
(Ct. Cl. 1981) ("It is obvious from the statutory language that there are three elements to the definitionappointment by an authorized federal employee or officer, performance of a federal function, and supervision
by a federal employee of officer-and that they are cumulative. . . . An abundance of federal function and
supervision will not make up for the lack of an appointment."); see also United States v. Testan, 424 U.S. 392,
402 (1976) ("The established rule is that one is not entitled to the benefit of a [Government] position until he
has been duly appointed to it.") (internal citations omitted); Homer v. Acosta, 803 F.2d 687, 692-94 (Fed. Cir.
1986) (finding that an appointment as a federal employee requires "a significant degree of formality" and
"evidence that definite, unconditional action by an authorized federal official designating an individual to a
specific civil service position is necessary to fulfill the appointment requirement of 5 U.S.C. § 2105(a)," and
that indicia of appointment include whether the person's compensation and benefits are paid and funded by
the civil service, whether an appointive document was executed, and whether the oath of office was
administered.). For a recent example ofa court finding that a worker was not appointed under the civil service
laws, see Lees v. Evans, 31 F. App'x 680, 682-83 (Fed. Cir. 2002) (finding that the worker in question was a
personal service contractor, not a government employee).
Thus, the prohibition on personal services contracts, which was derived from opinions seeking to assure that
the supervision of contract personnel by federal employees did not confer federal employment status upon
such personnel, is unnecessary to achieve its intended purpose. ACQUISITION ADVISORY PANEL, supra note
76, at 403.
80. Id.
81. For instance, DOD rules restrict military officials from instructing and disciplining contractor
employees, which creates inefficiencies and dangers on the battlefield. See John P. Figura, Comment, You 're
in the Army Now: Borrowed Servants, Dual Servants, and Torts Committed by Contractors'Employeesin the
Theaters of US. Military Operations, 58 EMORY L.J. 513, 525-26 (2008).
82.
See ACQUISITION ADVISORY PANEL, supra note 76, at 404.
86
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rather, government supervisors are supposed to use a middleman-a contractor
supervisor-to tell the contractor employees what to do.83 This extra layer of
supervision leads to numerous inefficiencies because it is much easier for a
government supervisor to direct the contractor employees herself, rather than work
through a middleman.84 As a result, "[s]ome agencies have expended significant
resources prescribing policies and guidance designed to help avoid. . . 'employeremployee relationships' identified in the FAR."85
The prohibition was further eroded in 1989 when the Office of Personnel
Management (OPM)86 authorized federal agencies to hire temporary staff through
personal services contracts. 87 This rule allows an agency to use personal service
contractors from temporary employment firms for brief or intermittent use if there
is a critical need. Whether there is a critical need is up to the agency's
discretion,89 and this decision is likely unreviewable under the Administrative
Procedure Act.90 Interestingly, OPM acknowledged that this regulation openly
contradicts the personal services prohibition, but OPM stated there must be an
exception for "the now-established role which temporary help services perform." 91
In an era where political efforts to downsize government have forced many federal
agencies to employ contractors in positions traditionally reserved for government
employees, the usefulness of the prohibition is questionable. 92
D. PersonalService ContractCase Studies
Below are two recent examples of how the prohibition creates inefficient
supervisory relationships between government supervisors and contractor
83. Id. at 419.
84. See id
85. Id.
86. OPM is an independent agency that manages all federal government civil service employees. See
About OPM, OFFICE OF PERSONNEL MANAGMENT, http://www.opm.gov/about-opm/ (last visited Oct. 10,
2011).
87. 54 Fed. Reg. 3762, 3762 (Jan. 25, 1989) (codified at 5 C.F.R. §§300.501-507 (2011)); see also FAR
37.112 (2011).
88. See 5 C.F.R. § 300.503 (2011). "Brief or intermittent use" can mean that an agency can hire an
individual temporary employee for up to 240 workdays. Id. §§ 300.503(a), 300.504(a)-(b).
89. See 5 U.S.C. § 701(a) (2006) (exempting from judicial review agency action that is "committed to
agency discretion by law"); Webster v. Doe, 486 U.S. 592, 600 (1988) (exempting from judicial review
nonconstitutional allegations of wrongful termination of an agency employee when the relevant statute
authorizes the agency head to fire employees whenever she "shall deem such termination necessary or
advisable"). As Professor Jon Michaels explains, "[p]rivatization of government responsibilities is frequently
a means of evading constraints such as the Administrative Procedure Act and judicial review." Jon D.
Michaels, The (Willingly) Fettered Executive: Presidential Spinoffs in National Security Domains and
Beyond, 97 VA. L. REv. 801, 805 (2011) [hereinafter Michaels, PresidentialSpinoffs]; see also Jack M.
Beermann, Privatization and Political Accountability, 28 FORDHAM URB. L.J. 1507, 1553-56 (2001)
Matthew Diller, Form and Substance in the Privatizationof Poverty Programs, 49 UCLA L. REv. 1739,
1745-46 (2002); Guttman, Public Purpose, supra note 31, at 894-96; Michaels, Privatization'sPretensions,
supra note 6, at 718.
90. See 5 U.S.C. §§ 551-559, 701-706 (2006).
91. Government Use of Private Sector Temporaries, 54 Fed. Reg. 3762, 3762 (Jan. 25, 1989).
92. See id. at 403.
2012]
Abolishing the Prohibitionon PersonalService Contracts
87
employees. These studies were chosen because they are representative of the larger
trend happening across government. 93
1. Department of Health and Human Services
The Inspector General (IG) 94 of the Department of Health and Human Services
has recently accused the Centers for Disease Control and Prevention (CDC) of
violating the prohibition on personal services contract in the CDC's administration
of a $106 million contract. 95
The CDC utilizes extensive service contracts to help accomplish its mission.
From 2000 through 2008, the CDC awarded more than $1.9 billion in service
contracts. 96 And like other agencies, the CDC is required to follow the FAR when
acquiring services. Tasked with auditing the CDC, the IG examined a 2003 CDC
contract for management and consulting services in which an estimated 110
service-contractor employees would be utilized.
The IG concluded that the CDC inappropriately administered the contract as a
personal service contract, and that the CDC's policies and procedures were not
adequate to ensure compliance with the prohibition. The IG found that the CDC
violated the FAR because the CDC used contractor employees just like government
employees, directly supervising and controlling contractor employees, evaluating
their performance, and signing their timecards. 97 The CDC also arranged for onsite
performance of their work, furnished contractor personnel with equipment and
supplies, used contractor services to directly advance the agency's mission, and
expected the need for the services to last more than one year.98
The most telling sign that this was a personal services contract was that CDC
supervisors exercised relatively continuous supervision and control over contractor
personnel who worked onsite at the CDC. These CDC supervisors gave routine
daily assignments to individual contractor employees. Contractor employees also
directly reported to CDC supervisors, even when the contractor employees wanted
93. Agencies are not likely to divulge on their own that they are violating the prohibition. As for
reported court cases, according to Westlaw, as of January 7, 2012, there are only eight cases in total citing 48
C.F.R. § 37.104, which defines personal services contracts and admonishes agencies not to award personal
service contracts. I found that none of the other reported cases illustrate the blended workforce as well as the
case studies I chose. Moreover, the examples that come out of the GAO-Controller General bid protest
opinions only tell us whether the contract on its face is for personal services. These opinions, though, do not
detail how the contractor employees and government workers interact in practice, which is my primary focus.
94. IGs are executive branch accountability officers that have the power to investigate legal violations
by agencies. See ERIC A. POSNER & ADRIAN VERMEULE, THE EXECUTIVE UNBOUND:
AFTER THE
MADISONIAN REPUBLIC 86 (2010).
95. Alice Lipowicz, Did CDC Violate Contract Rules? Agency, Auditors Disagree, FED. COMPUTER
WK., (Jan. 25, 2010), http://fcw.com/articles/2010/01/25/web-hhs-ig-cdc-personal-services-contract.aspx.
96. DANIEL R. LEVINSON, DEP'T OF HEALTH & HUMAN SERVS., OFF. OF THE INSPECTOR GEN., REVIEW
OF THE CENTER FOR DISEASE CONTROL AND PREVENTION'S COMPLIANCE WITH APPROPRIATIONS LAWS AND
ACQUISITION REGULATIONS-CONTRACTOR A (A-04-08-01059) 1 (2010) [hereinafter INSPECTOR GEN.
REV.], available at http://www.oig.hhs.gov/oas/reports/region4/40801059.pdf
97. See id. at 7. Eventually, the CDC prohibited CDC supervisors from signing or reviewing contractor
timecards. Id.
98. Id. at 8-9.
88
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to take time off from work. 99
Also telling is that CDC supervisors wrote the annual performance evaluations
for contractor employees. 100 Although the CDC is responsible for evaluating the
overall performance of a contractor, they are not supposed to evaluate individual
contractor employees. Additionally, about eight-five percent of the contractor
personnel were required to work onsite at CDC offices. 0 1 The CDC also provided
onsite contractor personnel with equipment and supplies, including computers and
telephones. 102 What's more, the CDC used these contractor employees to
supplement its government staff and to further the CDC's mission.103 Finally, the
CDC needed the contractor's services on a long-term, ongoing basis.104 Based on
all of this evidence, the IG report recommended that the CDC further evaluate its
contracts for compliance and institute additional policies and procedures to prevent
the creation of personal service contracts. 105
2. Army Contracting Center of Excellence
In another example, the GAO examined the Army Contracting Center of
Excellence's (CCE)106 contract with CACI, a private military contractor. The GAO
found that CACI contractors represented approximately forty-two percent of the
CCE's contract specialists, and that the CACI contractors worked side-by-side with
government workers on the same projects.107 These projects were "generally
assigned [by CCE staff] based on knowledge and experience, not whether the
specialist [was] a government or contractor employee." 10 8 This assignment strategy
seems to be efficient: it enables the government to utilize each person's unique
skills where they would be most effective.109
Although effective, this practice of assigning jobs without differentiating
99. Id. at 6-7.
100. Id. at 6-8.
101. Id. at8.
102. Id.
103. Id at 9.
104. Id.
105. Id at 12-13. Then a fight broke out between the CDC and the IG, with the CDC writing a letter to
the IG stating "we do not believe the contracts were regularly administered as personal services." Letter from
Thomas R. Frieden, Dir., Ctr. for Disease Control and Prevention, to Daniel R. Levinson, Dep't of Health &
Human Servs. Inspector Gen. (Oct. 7, 2009), availableat http://oig.hhs.gov/oas/reports/region4/
40801059.pdf. The IG claimed, however, that the CDC did not address the finding that CDC employees
provided relatively continuous supervision and control of onsite contractor personnel, violating the personal
services prohibition. INSPECTOR GEN. REV., supra note 96, at 13.
106. CCE is an Army department that provides contracting support services. See About CCE,
CONTRACTING CENTER OF EXCELLENCE, http://web.archive.org/web/20071227072348/http://dccw.hqda.
pentagon.millabout cce/history.asp (last visited Oct. 4, 2011).
107. U.S. Gov'T ACCOUNTABILITY OFF., GAO-08-360, DEFENSE CONTRACTING: ARMY CASE STUDY
DELINEATES CONCERNS WITH USE OF CONTRACTORS AS CONTRACT SPECIALISTS 3 (2008) [hereinafter GAO-
08-360, DEF. CONTRACTING]; see also Robert Brodsky, Pentagon Blurred Line Between Contractors,Feds:
GAO, Gov. EXEC. (Mar. 27, 2008), www.govexec.com/dailyfed/0308/032708rbl.htm?oref-relink.
108. Id. at 10.
109. See Swan, supra note 33, at 688-89.
2012]1
Abolishing the Prohibitionon Personal Service Contracts
89
between contractors and government employee's strategy runs dangerously close to
violating the personal services prohibition. The GAO notified the CCE that their
arrangement with CACI created a personal services contract. This forced the CCE
to put up a wall between the government employees and the contractors. 110 The
contractors were forced to work in separate areas from government employees, and
placed onto separate teams."' While it would have been more efficient to allow
government supervisors to tell contractors directly what they wanted, CACI
managers were required to supervise the CACI employees so that the prohibition
would not be violated.
As these examples suggest, the personal service prohibition is inefficient since
it forces government supervisors to utilize contract supervisors, who are usually just
unnecessary middlemen. Without the prohibition, government supervisors could
work directly with contractor employees, saving everyone time and money.
III. GOVERNMENT JOINT EMPLOYERS AND TITLE VII: THE PERSONAL SERVICES
PROHIBITION HAS NOT PREVENTED COURTS FROM IMPLYING EMPLOYMENT
RELATIONSHIPS BETWEEN CONTRACTOR EMPLOYEES AND THE GOVERNMENT
In the blended workforces, as we have seen, contractors are increasingly
working alongside civil servants, making contractors and federal employees nearly
indistinguishable.112 With this blurring, a distinct problem arises. Agencies from
the Defense Department (DOD) to the Energy Department are now finding that they
have to deal with the complex questions of defining whether their contractors could
be considered de facto government employees by courts for purposes of the
antidiscrimination laws. The issue has become increasingly important as to whether
a federal agency is responsible for when a worker is wronged, especially when
disputes emerge over pay, workers compensation, harassment, discrimination
claims, and other workplace issues.113 Contractor employees are now frequently
suing the government, alleging discrimination by their government supervisors or
even coworkers. These wronged contract employees are claiming that the agency
is their "joint employer," thereby opening the doors for the agency to be sued.
The prohibition has not been effective at preventing courts from finding that the
government is a joint employer of an employee (along with the contractor itself).
Although the personal service prohibition is still the law, agencies are consistently
acting like regular supervisors of contractor employees, forcing courts to hold
agencies accountable.
A. The Joint Employer Doctrine as Applied to the FederalGovernment
110. GAO-08-360, DEF. CONTRACTING, supranote 107, at 17.
111. Id.
112. Schooner & Swan, supranote 28, 1341.
113. Dana Hedgpeth, Federal ContractorsTravel ObscuredPath in Mediation Efforts, WASH. POST, Oct.
25, 2010, at Al 7, availableat http://www.washingtonpost.com/wp-dyn/content/article/2010/10/24/
AR2010102402229.html.
114. See Schooner & Swan, supranote 28, T 341.
90
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Title VII of the Civil Rights Act of 1964
prohibits employment
discrimination.116 In 1972, Congress also chose to protect federal employees by
amending Title VII to allow federal employees the ability to sue the government for
discrimination." 7 Congress intended to protect workers with a direct employment
relationship with the government, like civil servants. No one foresaw contractor
employees suing their government supervisors for discrimination.119
But in 1979-just seven years after Congress created protections for federal
employees-a circuit court held that contractor employees can sue the government
for discrimination if the government supervisor exercises enough control over the
contractor employee. In Spirides v. Reinhardt,120 a female broadcaster, working as
an independent contractor for an agency, sued the agency for sex discrimination.121
The court held that it was improper to ask whether the contractor is considered a
federal employee under the civil service laws. Rather the court asked whether she
should be deemed an employee of the agency for purposes of Title VII. 122
To determine whether the individual is an employee or independent contractor,
the court applied the general principles of agency law.123 This approach requires an
examination of all aspects of the relationship between the contractor employee and
the government to determine if a de facto employer-employee relationship exists.
The most important factor is the extent to which the employer has the right to
control the means and manner of the worker's performance.124 There are many
additional factors to consider as well, and no single factor is determinative.125
115. 42 U.S.C. §§ 2000e to el7 (2006).
116. Employers cannot discriminate against employees because of an employee's race, color, religion,
sex, national origin, age, disability, or genetic information. 29 C.F.R. § 1614.101 (2011). Discrimination is
defined as denying "the same employment, promotion, membership, or other employment opportunities as
have been available to other employees or applicants." 29 CFR § 1607.11 (2011). It is illegal for an employer
to discriminate in any aspect of employment, including hiring and firing, assignment and transfer of
employees, or other terms and conditions of employment. Federal Laws ProhibitingJob Discrimination
Questions and Answers, U.S. EQUAL EMP. OPPORTUNITY COMM'N, www.eeoc.gov/facts/qanda.html (last
visited May 9, 2011).
117. Equal Employment Opportunity Act of 1972, Pub. L. No. 92-261, sec 11, § 717(c), 86 Stat. 103, 112
(codified as amended at 42 U.S.C. § 2000e-16 (2006)).
118. See Spirides v. Reinhardt, 613 F.2d 826, 829 (D.C. Cir. 1979).
119. See Schooner & Swan, supra note 28, at 1341.
120. 613 F.2d. 826 (D.C. Cir 1979).
121. Id. at 827-28.
122. Id. at 831.
123. Id.
124. Id. at 831-32 ("If an employer has the right to control and direct the work of an individual, not only
as to the result to be achieved, but also as to the details by which that result is achieved, an
employer/employee relationship is likely to exist.").
125. Id. at 832 ("[Factors to be considered include] "(1) the kind of occupation, with reference to whether
the work usually is done under the direction of a supervisor or is done by a specialist without supervision; (2)
the skill required in the particular occupation; (3) whether the 'employer' or the individual in question
furnishes the equipment used and the place of work; (4) the length of time during which the individual has
worked; (5) the method of payment, whether by time or by the job; (6) the manner in which the work
relationship is terminated; i. e.[sic], by one or both parties, with or without notice and explanation; (7)
whether annual leave is afforded; (8) whether the work is an integral part of the business of the 'employer';
(9) whether the worker accumulates retirement benefits; (10) whether the "employer" pays social security
2012]
Abolishing the Prohibitionon PersonalService Contracts
91
Basically, if the government supervisor treats the contractor employee like a regular
employee, the Spirides court held that the contractor can sue the government for
discrimination. In other words, the government can be a joint employer of the
contractor employee.
The Spirides case created the federal contractor joint-employer test.126 In the
years after Spirides, as the federal workforce became more blended, federal courts
and the EEOC are facing a rising number of employment discrimination complaints
brought by contractor employees against their federal supervisors.127 Consequently,
the joint-employment doctrine continues to evolve as courts and the EEOC have
been asked to determine what circumstances contractor employees should be
considered de facto federal employees under Title VII.128 Indeed, the seminal
EEOC administrative case, 129 where the EEOC first applied the joint-employer
doctrine, has been cited in 350 administrative decisions.130 And in the last decade,
the EEOC has decided more than ninety cases in favor of contract employees; 131
this means that an agency was deemed a joint employer because the agency had
sufficient control over that contractor employee, and that the agency discriminated
against the employee.
There are two other reasons why there has been a spike in these joint-employer
suits. The first has to the do with the contract bid process. The government's
funding restrictions force agencies to seek cost savings. When the government
makes requests for proposals from contractors for a job that requires contractor
employees to work on a government worksite, the proposals do not usually include
requirements for space allocation for the contractor employees, or for direct labor
hours for a supervisor of contractor employees.132 Because the contractor wants to
grow her government business, the contractor will agree to these terms and agree to
manage her contractor employees from a remote location. This makes it difficult for
the contractor supervisor to be personally involved in the day-to-day management
of her employees. 133 Thus, because contractor supervisors have to manage their
employees remotely and there is no space allocated for contractor employees at
government worksites, it is likely that government supervisors are going to control
the contractor employees directly.
taxes; and (11) the intention of the parties.").
126. This is essentially the same test used in the private context. See, e.g., Virgo v. Riviera Beach
Assocs., 30 F.3d 1350, 1359-61 (11th Cir. 1994).
127. See Schooner & Swan, supranote 28, 341.
128. In 1997, the EEOC even adopted specific guidelines for this joint-employer phenomenon. The
guidelines stated that an employee may be considered a defacto employee of an agency if the agency "has the
requisite control over that worker." EQUAL EMP'T OPPORTUNITY COMM'N, NO. 915-002, ENFORCEMENT
GUIDANCE: APPLICATION OF EEO LAWS TO CONTINGENT WORKERS PLACED BY TEMPORARY EMPLOYMENT
AGENCIES AND OTHER STAFFING FIRMS (1997), availableat 1997 WL 33159161, at *7.
129. Ma v. Dep't of Health & Human Servs., EEOC Decision No. 01962390, 1998 WL 295965 (May 29,
1998).
130. This number was reached by doing a KeyCite of the Ma decision on Westlaw on May 20, 2011.
131. Hedgpeth, supra note 113.
132. Recommending a FAR Change, TIDEWATER Gov'T-INDUSTRY COUNCIL (last visited Apr. 16, 2011),
www.tasc-tgic.org/tgic/initiatives.htm [hereinafter PERSONAL SERVICES COMM. REP.].
133. Id.
92
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Second, there is also the natural tendency for the contractor employee to want
to please the customer (read: the government supervisor). There is usually no direct
knowledge of the contract scope or terms by members of either the contractor or
government teams. Without limitations, work relationships quickly develop,
resulting in contractor employees being supervised and treated like government
employees. 134
B. Joint-Employer Case Studies
These two case studies illustrate the joint-employer doctrine, and how
pervasive the blended workforce is. 135
1. The Sexually Harassing Navy Supervisor
In 1995, a court clarified the Spirides joint-employer test, finding that the
federal government can still be a joint-employer despite the fact that the individual
is a primary employee of a contractor. In King v. Dalton,136 Stephanie King was
employed by a contractor providing support services for the Navy. 137 The Navy
supervisor in charge of King's project, made sexually explicit comments to King,
Because of this conduct, King sued the Navy
and touched her inappropriately.
for sexual harassment.1 39
The court analyzed the relationship between King and the Navy supervisor to
see if the government was a joint-employer. The court found that the Navy
supervisor had some influence over King's work product as well as the pace and
direction of the overall project.140 It was also clear that if the supervisor complained
to King's contractor supervisors regarding her work, King's performance reviews
might be affected.141 And while neither the supervisor nor the Navy had the power
to fire King, the court concluded that if the supervisor strongly objected
to King's continued participation in the project, he could persuade the contractor to
remove her.142 This was true given the ever-present possibility that the Navy could
simply take their business elsewhere.1 43
Yet, looking at the totality of the circumstances, the court found that the Navy
was not King's joint-employer since the Navy did not maintain direct, supervisory
134.
135.
because
136.
137.
138.
139.
140.
141.
142.
143.
Id.
These examples are just the tip of the iceberg. Most joint-employer suits are settled out of court
the contractor and the government just want the problem to disappear.
895 F. Supp.831 (E.D. Va. 1995).
Id. at 834-35.
Id. at 835.
Id.
Id. at 841.
Id.
Id.
Id.
2012]1
Abolishing the Prohibitionon PersonalService Contracts
93
control over the daily details of her work.144 Although the court found that the
Navy was not King's joint-employer, this case clearly established that the
government cannot shield itself from liability, simply by asserting that it does not
directly employ or pay the contract employee. 145
2. Pregnancy Discrimination at the DOJ
In a recent case, Harris v. Attorney General of the United States,14 Carla
Harris was assigned as a background checker to the Executive Office for United
States Attorneys (EOUSA) of the Justice Department by her primary employer, a
contractor, who held a service contract with EOUSA.147 Harris was hired before her
pregnancy was visible, but started work at the EOUSA two months later, by which
time she was visibly pregnant.148 Harris was discharged after a few hours at the
EOUSA.1 4 9 Harris then sued, claiming that her EOUSA supervisor fired her
because she was pregnant. 50 Apparently, the supervisor had discharged four other
pregnant workers and commented on Harris' pregnancy.151
In determining whether Harris was a joint employee of the EOUSA, the court
relied heavily on standards developed under the common law of agency. Courts use
the common law because Title VII only sets forth a nominal definition of employee:
"an individual employed by an employer." 1 52 Finding that that this definition "is
completely circular and explains nothing," the Supreme Court encourages the use of
traditional agency law principles to answer this question. 153 The Court has
suggested that, for the purposes of all employment discrimination statutes,
144. Id. (arguing that the other Spirides factors also point away from a conclusion that the Navy was her
employer: (1) the contractor provided her work place, as well as all of her equipment and supplies; (2) the
Navy did not hire, train, or fire her, and other than her meetings with the supervisor she had little contact with
Navy personnel; (3) King's work involved a specific, isolated contract that the contractor had with the Navy;
(4) King received no compensation, annual leave, or retirement benefits from the Navy, nor did the Navy pay
her social security taxes; and (5) the parties did not intend to create an employer-employee relationship, they
structured the contract as a nonpersonal services contract).
145. Id. at 843-44.
146. 657 F. Supp. 2d I (D.D.C. 2009).
147. Id. at 4.
148. Id.
149. Allegedly Harris used profane language. Id. at 5-6.
150. Id. at 6-7.
151. Id. at 14.
152. 42 U.S.C. §2000e(f) (2006).
153. Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323 (1992) (interpreting "employee" in the
context of ERISA); see also Cmty. for Creative Non-Violence v. Reid, 490 U.S. 730, 739-40 (1989) (
"[W]here Congress uses terms that have accumulated settled meaning under ... the common law [such as the
term 'employee'], a court must infer, unless the statute otherwise dictates, that Congress means to incorporate
the established meaning of these terms.") (quoting NLRB v. Amax Coal Co., 453 U.S. 322, 329 (1981)
(interpreting employee in the context of the Copyright Act). The Court, in Nationwide, also referenced
the Restatement (Second) of Agency §220(2) (1958) as listing nonexhaustive criteria for identifying a masterservant relationship, and Rev. Rul. 87-41, 1987-1 C. B. 296-99, an IRS revenue ruling setting forth 20 factors
in determining whether an individual qualifies as a common law employee in various tax law contexts.
Nationwide Mut. Ins. Co., 503 U.S. at 324.
JournalofLegislation
94
[Vol. 38:1
including the Americans with Disabilities Act, 154 Title VII, and the Age
Discrimination in Employment Act,155 employee status can be determined by
applying the common law of master-servant relationships, with the control factor
being the principal guidepost. 156
The Harriscourt then applied the Spirides joint-employer test. Looking at the
control factor, the court found that the EOUSA supervisors exercised control over
Harris' daily tasks, furnished her work environment, and the contractor's role was
largely limited to signing paychecks.157 Harris had a nominal contractor supervisor,
who did not actually do any supervision; he was just a liaison between the
contractor and the EOUSA.' 58 In contrast, the EOUSA supervisor provided
supervision over the contractor employees in Harris' group, setting their schedule
and duties, and providing performance evaluations. 159 These tasks ,were
supervisory, and they fell to the EOUSA, not to the contractor.160 The other
Spirides factors also supported the conclusion that the EOUSA was Harris' joint
employer. 161
In conclusion, the court held that the level of control exercised by DOJ over
Harris and the economic realities of the workplace demonstrated that Harris was an
employee for the purposes of Title VII.162 The court noted that DOJ employees,
particularly her supervisor, directed Harris' daily tasks in the same way that they
would direct and evaluate federal employees who worked alongside Harris
performing identical work.1 63 The factors in favor of the EOUSA-focused largely
on payroll matters and formalization of hiring and termination-did not outweigh
the evidence that EOUSA had the right to control the means and manner of Harris'
165
performance,164 which is consistent with established precedent.
154. Americans with Disabilities Act of 1990, 42 U.S.C. §§12101-12213 (2006).
155. Age Discrimination in Employment Act of 1967, 29 U.S.C. §§ 621-634 (2006).
156. See Clackamas Gastroenterology Assocs., P.C. v. Wells, 538 U.S. 440, 446 n.6 (2003) (interpreting
"employee" in the context of the Americans with Disabilities Act); see also Frank J. Menetrez, Employee
Status and the Concept of Control in Federal Employment DiscriminationLaw, 63 SMU L. REv. 137, 158
(2010). At common law, an employee is an agent whose principal has the right to control the agent's physical
conduct. Restatement (Second) of Agency § 2(1)-(2) (1958); Restatement (Third) of Agency §
7
3
.07( )(a) (2006); see also STEPHEN M. BAINBRIDGE, AGENCY, PARTNERSHIPS & LLCs 19 (2004) ("[T]he
single most influential source of legal rules in this area remains the . . . Restatement of Agency.").
157. Harris,657 F. Supp. 2d at 11-12.
158. Id. at 12.
159. Id. at l.
160. Id.
161. Id.
162. Id. at 12-13.
163. Id. at 12.
164. Id. at 11.
165. Compare Int'l Union v. Clark, No. 02-1484 2006 WL 2598046, *2-3,*8. (D.D.C. 2006) (holding
that court security officers hired by contract but trained and directed by the United States Marshals Service
were deemed joint federal employees, where the government determined the qualifications for hiring and the
tasks that the officers performed, specified the manner in which the tasks and the daily duties were performed,
conducted a two to three day residential training program for the officers, provided the essential equipment for
the job, and decided whether to remove individual officers from the contract), with Redd v. Summers, 232
F.3d 933, 938, 940 (D.C. Cir. 2000) (holding that a tour guide whose federal supervisor directed the plaintiffs
employment for a brief period in nine months was a contractor), and Simms v. D.C. Gov't, 587 F. Supp. 2d
2012]
Abolishing the Prohibitionon PersonalService Contracts
95
C. Putting the PersonalServices Prohibitionand the Joint-EmployerDoctrines
Together
As these case studies suggest, the personal service prohibition has not stopped
agencies from entering into contracts that create de facto employer-employee
relationships between contractor employees and government supervisors. To deal
with the flouting of the prohibition, courts created the joint-employer doctrine to
hold government supervisors accountable for discrimination claims by contractor
employees.
With the astronomical rise of service contracts, these joint-employer suits have
been steadily rising.166 What is troubling is that government agencies might be
playing both sides of the fence: when it is convenient for an agency or when the
agency wants to have a tight rein over the contractor employee, like when the
worker wants to take time off, then the worker is deemed an "employee" by the
government. But when agencies need to distance themselves from a worker, then
they categorize her as a contractor.167 Experts find that the policies on how to deal
with these situations where a worker is paid by a contractor but works daily and
side-by-side with federal employees, and takes orders from federal supervisors,
have not caught up to the widespread use of contractors across the federal
For instance, the GAO has found that the DOD provided their
government.
supervisors with little guidance on how to determine whether a personal service
contract even exists. 169
269, 274-75 (D.D.C.2008) (holding that a mental health worker providing services to inmates with no
direction from prison personnel was a contractor), and Amiri v. Stoladi Prop. Gp., 407 F. Supp. 2d 119, 124
(D.D.C. 2005) (holding that a security guard was not an employee of a property manager with "no authority to
direct or control" him), and Mason v. African Dev. Found., 355 F. Supp. 2d 85, 95-98 (D.D.C. 2004) (holding
that a receptionist for a government agency was a contractor where the work was initially arranged through a
temporary services agency, the services were not integral to defendant's business, and the receptionist paid
her own social security taxes), andZhengxing v. Nathanson, 215 F. Supp. 2d 114,118, 120 (D.D.C. 2002)
(holding that a translator and producer of radio programs, working independently and paid by the assignment,
was a contractor).
166. One experienced federal employment attorney found:
You're absolutely seeing more of these types of cases . . . . People work for the federal government, they sit in
a government cubicle all day and get their orders from government supervisors. But it is a private contractor
that signs their paycheck, so when it comes to who to sue if something goes wrong, it becomes unclear who is
liable.
You're ricocheted back and forth between the contractor and the agency.
Hedgpeth, supranote 113.
167. Id.
168. Id.
169. E.g., GAO-08-360, DEF. CONTRACTING, supra note 107, at 17 ("[The GAO] found no additional
DOD guidance that elaborated on the factors contracting officers or program officials should consider in
determining whether a personal services contract exists and how to mitigate against this risk when contractors
are working side by side with their government counterparts, perhaps even receiving their daily task
assignments from a government supervisor."). It is important that government supervisors realize that they
can and likely will be sued by disgruntled contract employees under the antidiscrimination laws. Government
supervisors need to be trained so that joint-employer lawsuits can be avoided. See Mathew J. Gilligan,
FederalAgency "Joint Employer" Liability: Employment Discrimination Claims by Independent Contractor
Employees, ARMY LAW., Dec. 1999, at 54, 58-59 (explaining the Army guidelines for processing
[Vol. 38:1
JournalofLegislation
96
These legal relationships between contractors, contractor employees and the
government, and the relationship between the personal service prohibition and the
joint-employer doctrines, are shown visually below. Figure 1 displays the
relationships in a nonpersonal service contract.
FIGURE 1. NONPERSONAL SERVICE CONTRACTS
Nonpersonal Service Contract
GOVERNMENT
....
Primary Employment Relationship
CONTRACTOR
------------
NO Employment Relationship
--
-
------- -4 EMPLOYEE
Here there is a contract between the government and the contractor stating that
contractor employees will do some task for the government. This relationship is
governed by general contract law and the FAR. Here, each party should understand
his rights and obligations under the contract, and disputes should be resolve through
established procedures. 170
The contractor and the contractor employee also have a defined legal
relationship. This relationship is regulated by employment laws, the FAR, company
policies, and employment contracts. Just like the relationship between contractor
and government, the contractor and the contractor employee can resolve their
disputes through established procedures and guidelines. There is no legally
recognized relationship between the government and the contractor employees in a
nonpersonal services contract, however.171 The government is not allowed to treat
the contractor employees like its own. The temptation, though, is often too great.
As one expert explains, a "government employee who enters into a
supervisor/subordinate relationship with a contractor employee is working in a gray
area that is neither predictable nor risk free for any of the parties involved."l72 This
legal gray area is depicted in Figure 2.173
discrimination complaints by independent contractor employees); Schooner & Swan, supra note 28, 341
(explaining why government officials and contractors should be worried about these lawsuits).
170. Marcinko, supranote 65, at 53.
171. Id.
172. Id.
173. See infra notes 176 and accompanying text (describing personal service contracts as legal gray
holes)
Abolishing the Prohibitionon PersonalService Contracts
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97
FIGURE 2. DE FACTO PERSONAL SERVICE CONTRACTS
De Facto Personal Service Contract
GOVERN
ENT
Primary Employment Relationship
CONTRACTOR
De Facto Employment Relationship
1--f
--
EMPLOYEE
This Figure shows where the personal services prohibition and the joint
employer doctrines collide. The contract between the contractor and the
government never says it is for personal services, which would be illegal. Rather,
the contract says that it is for nonpersonal services,1 74 but then the contract
language is disregarded. The government supervisors treat the contractor employees
just like government employees. 175 This is what happened in the Health and Human
Services case study discussed above. As that case study showed, when the
government uses the contractor employees as its own, the contract becomes a de
facto personal services contract. That is why the IG told the agency head to stop
using the contractor employees as if they were normal federal employees.
Similarly, when the government exercises control over contractor employees,
the government runs the risk of a court finding that the government is a joint
employer of the contractor employees. This is because the tests of whether the
government is operating a personal service contract or whether the government is a
joint employer are largely the same. If the government extensively controls the
contractor employees, it is likely that the contract is for personal services and that
the government is the contractor employees' joint employer.
IV. SOLUTIONS TO THE PERSONAL SERVICES CONUNDRUM
There seems to be two general solutions: either strictly enforce the prohibition,
or abolish it entirely. The current middle path of quasi-enforcement is not working.
The prohibition is now a gray hole in government accountability because the
prohibition is established, but disregarded. 176
174. Indeed, the FAR requires that contracting officers ensure that proposed contract for services is only
for nonpersonal services. See 48 C.F.R. § 37.103(a) (2011) (requiring the officer to specifically document
that the contract is for nonpersonal services, which should include the opinion of legal counsel in doubtful
cases). Cf Tech Sys., Inc. v. United States, 98 Fed.C1. 228, 250 (2011) (calling this process a "routine aspect[]
of government services contracts").
175. Marcinko, supra note 65, at 52.
176. One way to view the personal-service-contracting problem is through an executive accountability
metaphor that compares non-reviewable executive actions to black holes. Legal black holes are domains
where executive branch officers and supervisors are patently free from legal checks; the executive here does
not have to comply with the rule of law, as their actions are excluded from judicial review. DAVID
DYZENHAUS, THE CONSTITUTION OF LAW: LEGALITY IN A TIME OF EMERGENCY 3 (2006); Michaels,
PresidentialSpinoffs, supra note 89, at 884; see also Adrian Vermeule, Our Schmittian Administrative Law,
122 HARv. L. REV. 1095, 1096-98 (2009) (finding that extending legality in an attempt to eliminate these
black and gray holes is impracticable and utopian). Nevertheless, executive officials are supposed to comply
98
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Crafting a workable solution will be difficult, though, because we do not know
the extent of the problem. It is impossible to determine how many personal services
contracts are out there; the government does not keep statistics on illegal
practices. 77 Besides the cases, and the experts who have stated that personal
services contracts are prevalent,' 78 there are some macro data points that suggest
that personal service contracts are commonplace.
For example, the GAO found that a significant number of defense contractor
employees are working side-by-side with government employees at the DOD. At
fifteen of the twenty-one offices that the GAO reviewed, contractor employees
outnumbered DOD employees and comprised as much as eighty-eight percent of
the workforce.1 79 Also, the Director of National Intelligence reported that 37,000
contractor employees work side-by-side with government intelligence workers.180
with the personal services prohibition, even if they do not. That makes personal service contracting more like
a disguised black hole, or a legal gray hole. See DYZENHAUS, supra, at 3. Gray holes arise when "there are
some legal constraints on executive action . . . but the constraints are so insubstantial that they pretty well
permit govemment to do as it pleases." Id. at 42. In a sense, federal agencies are doing as they please in terms
of personal service contracts. Besides government watchdogs like the Inspectors' General, there is little
enforcement of the personal services prohibition.
Also, there is no political accountability pressuring the government to comply with the rules. Political
constraints are deeply problematic with non-headline issues. The effectiveness of political constraints depends
on whether the public can appreciate what the government is doing, whether it cares about the particular issue,
and whether it cares about the issue sufficiently to register objections. See Michaels, PresidentialSpinoffs,
supra note 89, at 884. In this area of personal service contracting, the public is not paying enough attention to
hold the government accountable. The concept of political accountability has been attacked by scholars. See,
e.g., Christopher R. Berry & Jacob E. Gersen, The Unbundled Executive, 75 U. CHI. L. REV. 1385, 1391
(2008); Cynthia R. Farina, The Consent ofthe Governed: Against Simple Rulesfor a Complex World, 72 CHI.KENT L. REv. 987, 1002-07 (1997); Peter M. Shane, PoliticalAccountability in a System of Checks and
Balances: The Case of Presidential Review of Rulemaking, 48 ARK. L. REV. 161, 197 (1995); Glen
Staszewski, Reason-Giving and Accountability, 93 MINN. L. REv. 1253, 1265-77 (2009). But see Clinton v.
City of New York, 524 U.S. 417, 488-490 (1998) (Breyer, J., dissenting) (finding that the President and her
officers are highly sensitive to voter preferences and will take into account the majoritarian view, or else be
punished in the next election).
There is even less political accountability in agencies that work in the realm of national security, where affairs
are purposefully kept secret. Michaels, PresidentialSpinoffs, supra note 89, at 885; see also Elena Kagan,
PresidentialAdministration, 114 HARV. L. REV. 2245, 2337 (2001) (finding that political accountability is
greatest when the issue is highly visible to the public); Heidi Kitrosser, The Accountable Executive, 93 MINN.
L. REV. 1741, 1744 (2009) (finding that where the President can control information, there is less political
accountability); William P. Marshall, Break Up the Presidency? Governors, State Attorneys General, and
Lessons from the DividedExecutive, 115 YALE L.J. 2446, 2475 (2006) (indicating that there is especially little
accountability "in the areas of national security and foreign affairs, [where] much executive action is done in
secret").
177. Marcinko, supranote 65, at 54.
178. Schooner & Swan, supra note 28.
179. U.S. Gov'T ACCOUNTABILITY OFF., GAO-08-169, DEFENSE CONTRACTING: ADDITIONAL
PERSONAL CONFLICT OF INTEREST SAFEGUARDS NEEDED FOR CERTAIN DOD CONTRACTOR EMPLOYEES 3
(2008).
180. Robert O'Harrow Jr., ContractorsAugment Intelligence Agencies, WASH. POST., Aug. 28, 2008, at
DI, available at www.washingtonpost.com/wp-dyn/content/article/2008/08/27/AR2008082703142.html.
Professor Michaels has extensively catalogued the post 9/11 private-public partnerships in the intelligence
field, including the extensive use of contractors. He has also outlined the potential dangers of these
arrangements. See Jon D. Michaels, All the President'sSpies: Private-PublicIntelligence Partnershipsin the
War on Terror, 96 CALIF. L. REV. 901, 904-06, 936, 960 (2008); Jon D. Michaels, Deputizing Homeland
Security, 88 TEX. L. REV. 1435, 1435-36, 1452, 1466 & n.141 (2010).
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Abolishing the Prohibitionon PersonalService Contracts
99
Even Congress has taken notice of the extensive use of personal services contracts,
and has required DOD to create guidelines. 181
This Part analyzes three proposals (not mutually exclusive) for dealing with the
personal services conundrum: (1) insource by hiring more government employees
and enforce the prohibition; (2) abolish the prohibition and regulate it, and (3)
authorize more congressional oversight of service contracts. I ultimately conclude
that the FAR regulations on personal service contracts should be amended so that
personal service contracts are generally allowed, except for service contracts that
perform inherently government functions. More congressional oversight is needed
as well.
A. Insourcingthe Work by HiringMore Government Employees
One possible way to stop the personal services workaround is for the
government to hire more federal employees. This would lessen the demand for
service contractors. This process is called insourcing (the opposite of outsourcing).
Insourcing happens when the government directly performs the function itself,
instead of contracting it out. This option would please public employee unions, who
were the first to challenge agencies use of contractors. 182
Yet insourcing is not politically popular. The creation of the Transportation
Security Administration (TSA) 83 provides a vivid example. 184 After the September
11, 2001 terrorist attacks, the Senate immediately took steps to nationalize the
administration of airport security throughout the country. 185 The Bush
Administration and Republican lawmakers,186 however, were concerned with the
size of the federal government.' 8 7 Eventually, a compromise was reached that
federalized all airport screeners but allowed airport operators to opt out of the
federal program by showing that private screeners were just as effective.18 8 Three
181. See Duncan Hunter National Defense Authorization Act for Fiscal Year 2009, Pub. L. No. 110-417,
831, 122 Stat. 4356, 4534 (2008) (forcing the DOD to (1) require a clear distinction between DOD
employees and DOD contractor employees; (2) provide appropriate safeguards with respect to when the DOD
can enter into personal services contracts; and (3) assess and mitigate the risk that nonpersonal services
contracts, as implemented and administered, become personal services contracts).
182. See, e.g., Lodge 1858 American Federation of Government Employees v. Adm'r NASA, 424 F.
Supp. 186, 189 (D.D.C. 1976), affd in part, vacated in part,580 F.2d 496, 507 (D.C. Cir. 1978).
183. See Aviation and Transportation Security Act, Pub. L. No. 107-71, § 101(a), 115 Stat. 597, 597-602
(2001) (codified as amended at 49 U.S.C. § 114 (2006)).
184. See Swan, supra note 33, at 693-94.
185. See id.; 147 CONG. REc. 22, 895 (2001) (statement of Rep. Jackson-Lee) ("[W]e will have a
federalized system. All the employees will be trained and there will be standards, and we will be able to say
that the long arm, the effective arm, the strong arm, the equal opportunity arm of the government will stand in
the place of securing our airports and airlines.").
186. See Verkuil, supra note 7, at 446 ("The Republican distaste for increasing government employment
(in this case by 28,000) stymied the legislation until an opt-out compromise was accepted. The White House
also objected to providing airport screeners with civil service protections and demanded the right to hire and
fire personnel.").
187. Id.; Lizette Alvarez, A Nation Challenged: Airline Safety; Senate Votes to FederalizeJob ofAirport
Screening, N.Y. TIMEs (Oct. 12, 2001), http://www.nytimes.com/2001/10/12/us/nation-challenged-airlinesafety-senate-votes-federalize-job-airport-screening.html ("President Bush 'has serious concerns that full
federalization of the screener work force' could cause significant problems.").
188. See Aviation and Transportation Security Act §108(a), 115 Stat. at 611-13 (codified as amended at
49 U.S.C. §§ 44919-20 (2006)).
§
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years after the TSA's creation, some lawmakers began questioning the need for the
TSA at all, claiming that its creation was a kneejerk response to 9/11.189 These
lawmakers claimed that private screeners could do a more efficient job than an
agency.190 The Obama Administration, however, decided not to allow any more
private screeners, finding no clear advantage for using contractors. This political
battle illustrates how difficult it is to build enough support for the creation of new
civil service jobs, even in sensitive domains like national security.
Moreover, because there are many benefits to relying on private contractors to
perform services, such as surge capacity, greater flexibility, and competitive
incentive schemes, critics will argue that hiring more government workers will
waste taxpayer dollars.192 Private contractors have a greater ability to hire more
qualified workers by paying them more, advancing them faster, and they have a
greater ability to fire employees they do not like. 193
In contrast, rigid civil service laws make the hiring and firing process slow. 194
These laws also limit an agency's ability to use performance incentives.95 What is
more, President Obama's recent decision to freeze the pay of civil servants through
2012 will surely erode the ability of the government to attract the best talent.196
It is also a misconception that service contracts can save the government money
because service contractors are more cost-effective; contract workers are not always
cheaper than government workers. For instance, the average intelligence contract
worker costs the government about $207,000 annually, compared with about
$125,000 for a government employee. 197
189. See Some in GOP Want Private Airport Screeners, USA TODAY (June 1, 2004),
http://www.usatoday.com/ travellnews/2004-06-01-screeners x.htm ("Republicans, who were never entirely
comfortable with creating a new bureaucracy, want to return all airport security screener jobs to the private
sector, where they were before Sept. 11, 2001").
190. See id.
191. Mike M. Ahlers & Jeanne Meserve, TSA Shuts Door on Private Airport Screening Program, CNN
(Jan. 29, 2011), http://articles.cnn.com/2011-01-29/travel/tsa.private l-tsa-govemment-screeners-screeningprogram ? s=PM:TRAVEL.
192. See, e.g., Schooner & Greenspahn, supra note 33, at 13 ("Using outside contractors for surge
capacity offers the government the ability to supplement limited governmental resources far more quickly,
efficiently, and effectively than the existing federal personnel or acquisition regimes permit.").
193. Id. at 10.
194. See DANA PRIEST & WILLIAM M. ARKIN, TOP SECRET AMERICA: THE RISE OF THE NEW AMERICAN
SECURITY STATE 180 (2011) (noting the increased use of contractors because the civil service laws made the
hiring process too slow); P. VAN RIPER, HISTORY OF THE UNITED STATES CIVIL SERVICE 529 (1958)
("[I]ncreasing red tape, greater procedural controls, more restrictive dismissal procedures, and more review
and appeal boards-all in the name of justice, security, and fair play for civil employees, [are] all wreaking
havoc with flexibility, administrative discretion, decentralization, and, ultimately, the individual again.").
195. See Schooner & Greenspahn, supra note 33, at 10 ("While the government can employ similar tools
[as private companies], their effect-or the degree to which these tools can influence behavior-is at least
perceived as far less dramatic, given a heavily constrained promotion and bonus regime and an impenetrable
de facto tenure system."); see also Howard Risher, Pay For Performance: The Key to Making it Work, 31
PUB. PERS. MGMT. 317, 318 (2002) (finding that when performance compensation was tried under the Civil
Service Reform Act of 1978 and then under the Performance Management and Recognition Act starting in
1984, the experience was so bad that the laws were allowed to sunset and the idea of pay for performance was
all but forgotten).
196. See Peter Baker & Jackie Calmes, Obama Declares Two-Year Freeze on FederalPay, N.Y. TIMES,
Nov. 30, 2010, at Al.
197. O'Harrow, supra note 180; see also PRIEST & ARKIN, supra note 194, at 180-81 (noting that the idea
Abolishing the Prohibitionon PersonalService Contracts
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101
Proponents of insourcing also have to contend with the fact that the federal
civil service is in dire need of repair. As the National Commission on Public
Service explains:
There are too many decision makers, too much central clearance, too many
bases to touch, and too many overseers with conflicting agendas.
Leadership responsibilities often fall into the awkward gap between
inexperienced political appointees and unsupported career managers. ...
Policy change has become so difficult that federal employees themselves
often come to share the cynicism about government that afflicts many of
our citizens. [As a result] too many of the most talented leave the public
198
service too early; too many of the least talented stay too long.
It does not help that presidents, in defense of their aggregation of power, routinely
bash the civil service. Ronald Reagan and George W. Bush used this rhetoric most
aggressively, but Democrats can play this game as well.199 To be sure, the poor
performance of the civil service has many causes, including low pay and bad
working conditions. 20 0
Still, there are strong arguments in favor of insourcing:
A government manager operating in a personal services environment is
able to circumvent no only the civil services rules, but basic employment
law as well. It is like having your cake and eating it too. The manager can
direct the personnel on a day-to-day basis without having to deal with the
bureaucratic and legal challenges of hiring, compensating, disciplining,
transferring, promoting, or terminating civil servants. While this may result
in accomplishing work more efficiently, is it an appropriate employment
model for government? . . . If the government needs employees, it should
hire them. If the current personnel system and the approach to funding
agencies do not allow this than they should be changed. 201
Besides offering an illusion that the federal government has gotten smaller, personal
service contracts significantly benefit contractors and please antiunion politicians
and their supporters.202 Pure politics should not be the reason why the government
contracts out.
But, given the current political climate, hiring more federal civil servants seems
like an untenable policy. The recent attacks on public-employee unions across the
that contractors would be less expensive has been thoroughly repudiated because a 2008 study published by
the Director of National Intelligence found that contractors made up twenty-nine percent of the workforce in
intelligence agencies, but costs the equivalent of forty-nine percent of their personnel budgets).
198. NAT'L COMM'N ON THE PUB. SERV., URGENT BUSINESS FOR AMERICA: REVITALIZING THE FEDERAL
GOVERNMENT FOR THE 21ST CENTURY 1 (2003) (emphasis added).
199. See RENA STEINZOR & SIDNEY SHAPIRO, THE PEOPLE'S AGENTS AND THE BATTLE TO PROTECT THE
AMERICAN PUBLIC: SPECIAL INTERESTS, GOVERNMENT, AND THREATS TO HEALTH, SAFETY AND THE
ENVIRONMENT 126 (2010).
200. Id at 216-18; see DAVID E. LEWIS, THE POLITICS OF PRESIDENTIAL APPOINTMENTS: POLITICAL
CONTROL AND BUREAUCRATIC PERFORMANCE 141-42 (2008) ( "[T]he best workers will choose the private
sector over government work because the private sector is more likely to reward them for their
performance.").
201.
Marcinko, supra note 65, at 55-56 (emphasis added).
202. Id. at 55.
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country203 and the significant obstacles to reforming civil service pay to make it
performance based204 are reason enough to think that a push for insourcing would
be dead on arrival. 205
1. Better Enforcement of the Prohibition
If the personal services prohibition is kept, there would need to be a renewed
enforcement effort. That would mean that IGs would have to audit more contracts;
and if agencies were found to be using personal service contracts, there would have
to be real penalties. This is what is supposed to be happening now, but it is
obviously not working.
Whether IGs will actually be able to stop the operation of personal service
contracts is questionable. It is less than clear though whether IGs can effectively
promote executive accountability and stop the use of personal service contracts. 206
There are also difficulties in terminating existing personal service contracts.
Even if an IG wants an agency to cancel a contract, government agencies are still
likely to continue the contractual relationship because the altemative-starting the
process over or insourcing the responsibilities-is prohibitively expensive. 207
203. For differing perspectives on the merits of public sector unions, see Wisconsin's Blow to Union
Power, N.Y. TIMES (Feb. 18, 2011), www.nytimes.com/roomfordebate/2011/02/18/the-first-blow-againstpublic-employees.
204. Patricia Wallace Ingraham, Building Bridges over Troubled Waters: Merit as a Guide, 66 PUB.
ADMIN. REV. 486, 493-94 (2006) (finding that merit is not cultivated in the present civil service system, and
that reforms focused on merit should be a fundamental objective); see, e.g., Is DHS Too Dependent on
Contractors to Do the Government's Work?: Hearing Before the S. Comm. on Homeland Sec. & Gov't
Affairs, 110th Cong. 4 (2007) (statement of Steven L. Schooner, Co-Director Gov't Procurement Law
Program, Geo. Wash. Law Sch.) ("While we continue to witness efforts to reform the civil service system and
inject more potent performance incentives, history reminds us that this is a daunting task.").
205. Professor Michaels notes in his most recent draft article that insourcing is less likely to happen the
further you get away from when the services were outsourced; this is because the "short-term fiscal costs
might seem too great to bear-especially for legislators and chief executives subject to frequent and
competitive electoral challenges." Jon D. Michaels, Privatization's Plateau 3 (Jan. 8, 2012) (unpublished
manuscript on file with author). There is also the perception that federal government workers are overpaid,
which likely reduces the political will to create more federal jobs. See, e.g., Andrew Biggs & Jason Richwine,
Yes, They're Overpaid: The Truth about FederalWorkers' Compensation, WKLY. STANDARD (Feb. 14, 2011),
www.weeklystandard.com/articles/yes-they-re-overpaid 541409.html?nopager- 1.
206. The leading study on IGs concludes: "[Tihe Inspectors General have been more or less effective at
what they do, but what they do has not been effective. That is, they do a relatively good job of compliance
monitoring, but compliance monitoring alone has not been that effective at increasing governmental
accountability." William S. Fields, The Enigma of BureaucraticAccountability, 43 CATH. U. L. REv. 505,
516-17 (1994) (reviewing PAUL C. LIGHT, MONITORING GOVERNMENT: INSPECTORS GENERAL AND THE
SEARCH FOR ACCOUNTABILITY (1993)).
207. Michaels, Privatization'sPretensions, supra note 6, at 719, 770 n.219; Super, supranote 6, at 41421 (describing the difficulties of replacing contractors). This is true even though the government has wide
latitude to unilaterally terminate contracts for their convenience. FRANK M. ALSTON ET AL, CONTRACTING
WITH THE FEDERAL GOVERNMENT 375 (2d ed. 1988). Termination for convenience clauses provide
government contracting officers with the right to terminate contracts when it is in the government's best
interest. See 48 C.F.R. § 49.103 (2011). The regulations implementing this power contain no limits on when
this power may be exercised. 48 C.F.R. pt. 49 & 52.249-1 to 7 (2011).
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Abolishing the Prohibitionon PersonalService Contracts
103
B. The Best Option: Abolish the Prohibitionthen Regulate
The strongest argument for abolishing the prohibition is that government
managers will be able to more efficiently supervise their service contractors.
Without the prohibition, the government would not have to go through a middle
man to supervise a contractor employee. If the government could supervise the
contractor employees directly, this would save money.
Eliminating the personal services prohibition would also allow federal agencies
and Congress to better regulate personal service contractors. Currently, no
regulation can be enacted because the government cannot regulate conduct that is
already illegal.208 A ban on personal service contractors has constrained lawmakers
from regulating personal service contractors.
Moreover, abolishing the prohibition would not eliminate the legal distinction
between federal government employees and service contractors. Civil service
employees would still need to be formally appointed and hired, and they would
keep their extensive job protections. 209
One commentator is quite skeptical about abolishing the personal services
prohibition:
If personal services are legalized, it will be even easier to circumvent the
protections our civil servants currently enjoy. It makes little sense to
implement a series of employment safeguards while simultaneously
implementing a way to circumvent them. Also, the entireframework of our
compliance system, as it relates to personalservice contracts, will need to
be revised if the prohibition is repealed. Additional restrictions must be
developed for the contractor employees working in a personal services
208. Swan, supra note 33, at 690 & fn.143.
209. Professor Light found that "[i]f you want to fire an employee, you're taking on a task that is very
intense and difficult, and biased in favor of protecting employees, and it can take a year or more to complete."
Angie Drobnic Holan, Firing Federal Workers is Difficult, POLITIFACT (Sept. 5, 2007, 5:52 PM),
KELMAN,
STEVEN
see
also
www.politifact.com/truth-o-meter/article/2007/sep/05/mcain-federal/;
UNLEASHING CHANGE: A STUDY OF ORGANIZATIONAL RENEWAL IN GOVERNMENT 28 (2005) ("Dismissing
or reassigning recalcitrant employees is considerable more difficult in government than in most business
firms."); Freeman, Extending Public Law Norms, supra note 6, at 1297; Gerald E. Frug, Does the Constitution
Prevent the Dischargeof Civil Service Employees?, 124 U. PA. L. REV. 942, 945 (1976) (finding that civil
servants basically have life tenure).
A civil service job is a form of "new" property that cannot be taken away without due process. See Charles A.
Reich, The New Property, 73 YALE L.J. 733, 733 (1964); see also Cleveland Bd. of Educ. v. Loudermill, 470
U.S. 532, 539-41 (1985) (holding that nonprobationary civil servants have a property right to continued
employment, and such employment could not be denied to employees unless they were given an opportunity
to hear and respond to the charges against them prior to being deprived of continued employment); Mathews
v. Eldridge, 424 U.S. 319, 332-33 (1976); Service v. Dulles, 354 U.S. 363, 382-89 (1957).
Thus, a federal employee is entitled to a Loudermill hearing prior to firing her. The purpose of the
pretermination hearing is to provide an "initial check" against erroneous discharge. Loudermill, 470 U.S. at
545. After an employee of most Executive Branch agencies is fired, the employee can request that an
administrative judge of the U.S. Merit Systems Protection Board conduct a hearing into the matter. The
agency will have to prove that the action was warranted, and the employee will have the opportunity to
present evidence to the contrary. See CHARLES W. HEMINGWAY, AM. BAR ASS'N, THE U.S. MERIT SYSTEMS
PROTECTION BOARD: OVERVIEW OF EMP. RIGHTS AND MSPB PROCEDURE (1999), available at
www.bna.comlbnabooks/ababna/annual/99/annual5 1.pdf.
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environment and the responsibility for compliance must shift, at least in
210
part, from the contractor to the government managers.
In any event, abolishing the prohibition would take a tremendous amount of effort
to create a new compliance system for service contracts. Also, new personal service
regulations would further complicate the already too complicated FAR. But
abolishing the prohibition seems to be the direction we are heading in. 21 1 In these
next sections, I propose regulations that should be enacted when the prohibition is
abolished.
1. Contractor Ethics
Government employees are subject to extensive ethics laws.212 Contractors
have no such obligations. This encourages some federal agencies to rely more
heavily on service contractors because agencies do not have to enforce the ethics
laws on contractors.213 Given the blurring of the distinction between contractors
and federal employees, it no longer makes sense for ethics laws to differentiate
between service contractors and government employees.
Congress should make service contractors subject to some ethics laws so that
contractors are not allowed to put their interests above those of the government.
There is already one type of government employee-special government employees
(SGE)214 -that Congress could use to help model ethics laws for service
contractors. SGEs are short-term employees215 that are often recruited because they
provide outside expertise or perspectives that might be unavailable among an
agency's regular employees.216 Most importantly, SGE's are considered
government employees for the purposes of a specific set of conflict of interest and
ethics rules. SGEs are subject to less restrictive conflict of interest requirements and
ethics rules than regular government employees, but are subject to more restrictive
requirements than nonemployees like contractors.217 Congress should model their
reform off of SGE ethics laws. Service contractors should be subject to some ethics
regulations like SGEs, but probably not all of the same ethics laws as actual
government employees. 218
210. Marcinko, supranote 65, at 56 (emphasis added).
211. Id. at57.
212. See 18 U.S.C. §§ 201-219 (2006).
213. See generally Swan, supra note 33, at 697-701 (arguing that service contractors should be free from
personal conflicts of interest).
214. For the statutory framework, see 18 U.S.C. 202(a) (2006); 5 C.F.R. § 2641.101 (6) (2011).
215. United States v. Del Toro, 513 F.2d 656, 662 (2d Cir. 1975), cert. denied423 U.S. 826 (1975).
216. Ethics Training for Special Government Employees, U.S. OFFICE OF Gov. ETHICS,
http://education.oge.gov/training/module_files/ogesge wbt 07/14.html (last visited May 9, 2011) (explaining
that SGEs are generally used as advisory committee members, individual experts, or consultants).
217. Id.
218. Agencies are already starting to implement contractor ethics reform. In a final rule, contractors and
subcontractors who are performing acquisition functions are now required to identify and prevent personal
conflicts of interest of their employees and prohibit employees who have access to non-public information
from using such information for personal enrichment. See Federal Acquisition Regulation; Preventing
Personal Conflicts of Interest for Contractor Employees Performing Acquisition Functions, 76 Fed. Reg.
68017 (Nov. 2, 2011) (to be codified at 48 C.F.R. pt. 1, 3, 12, & 52). Some scholars would go even further
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Abolishing the Prohibitionon PersonalService Contracts
105
2. Eliminating the Employment Law Status Differential Between Personal Service
Contractors and Government Employees
Congress should also consider eliminating the legal-status differential 2 19
between service contractors and government employees in relation to employment
laws. To implement this proposal, Congress would have to force agencies to label
particular contract employees as personal or nonpersonal service contractors. If a
particular contract employee was labeled a personal service contractor by a
government official, she would be allowed to sue the government for discrimination
violations more easily (she would not have to prove that the government was her
joint employer), or be able to seek non-legal remedies like mediation.
The benefit of this proposal is that it puts everyone on fair notice as to what
their legal rights and obligations are. Moreover, this change would protect
contractor employees from discrimination. In return, the government would be able
to intimately control the contractor employees' work.
Of course, for this regulation to be successfully implemented, the contractor
employee would have to be designated as a personal service contractor by the
government. Whether the government would be motivated to properly designate
contractor employees is another question.
3. Stopping Contractors From Performing Inherently Governmental Functions
One of the primary reasons for the prohibition in the first place was that the
government was concerned that service contractors would perform inherently
governmental functions. As early as 1926, the Comptroller General overturned a
Navy contract for the sampling of tea by personal service contractors; the
government claimed that this work should be done by government workers, not
contractors.220 Basically the Comptroller General argued that some services should
not be contracted out because they are inherently governmental.
It seems the Comptroller got it right. There should not be a complete
prohibition on personal service contracts. Rather, the prohibition should be
narrowed to only those personal service contracts for which inherently
governmental functions are performed. Whether the contractors perform inherently
governmental functions should be the primary concern. Instead of having a rigid
prohibition, Congress and the Executive should decide which jobs and functions are
and subject all personal service contractors (once the prohibition is abolished) to all government ethics laws.
See Swan, supranote 33, at 697-701.
219. Legal-status differentials exist when contractors are treated differently than government actors even
though they do the same tasks. See, e.g., John Warner National Defense Authorization Act for Fiscal Year
2007, Pub. L. No. 109-364, § 552, 120 Stat. 2083, 2217 (2006) (codified at 10 U.S.C. § 802(a)(1) (2006))
(eliminating some the differentials between military contractors and soldiers); Military Extraterritorial
Jurisdiction Act of2000 Pub. L. No. 106-523, § 3261(a),l 14 Stat. 2488, 2489 (codified at 18 U.S.C. §§ 326167 (2006)) (extending criminal jurisdiction to contractors working for the DOD in overseas military
engagements).
220. See Comp. Gen. A-13436, 6 Comp. Gen. 140, at 142; Comp. Gen. A-13436, 7 Comp. Gen. 374, at
379-80 (1927); see also Robert Erwin Korroch, Rethinking Government Contractsfor Personal Services 1113 (Sept. 30, 1997) (unpublished LLM thesis, George Washington University Law School), available at
www.pubklaw.com/papers/korrochthesis.pdf
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inherently governmental. This will allow the government to draw more coherent
lines on what jobs should be contracted out.
Further, the prohibition is stopping the government from holding contractors
accountable. A recent GAO report acknowledged that there is an "inherent tension
between the government's responsibility to refrain from exercising relatively
continuous supervision and control over contractor employees. .. and the
government's responsibility to ensure enhanced oversight when contracting for
functions that closely support inherently governmental functions."221 If the
prohibition was lifted, the government could better supervise contractors who are
performing sensitive functions.
These next subsections will examine the law on inherently governmental
functions, and Obama's Policy Letter on what functions should not be contracted
out.
a. Current Law
Longstanding government regulations direct federal agencies to contract out
where (1) outsourcing does not lead to the delegation of inherently governmental
responsibilities to contractors, and (2) it is efficient to do so.222 Agencies are
instructed to make an inventory of their responsibilities, distinguishing inherently
governmental activities from those that are commercial in nature. Activities
designated as inherently governmental cannot be contracted out, even if it would be
more efficient. 223
An "inherently governmental function means a function that is so intimately
related to the public interest as to require performance by Federal Governmental
employees."224 Besides inherently governmental functions, agencies must give
"special consideration" to using government personnel in performing functions
closely associated with the performance of inherently governmental functions.225
221. GAO-08-360, DEF. CONTRACTING, supra note 107, at 17 n.20. The GAO report specifically cited
FAR 37.114(b) as evidence of this greater responsibility. See id.; FAR 37.114(b) (2010) ("A greater scrutiny
and an appropriate enhanced degree of management oversight is exercised when contracting for functions that
are not inherently governmental but closely support the performance of inherently governmental functions.").
222. See 48 C.F.R. §§ 14-15 (2011); OFF. OF BUDGET AND MGMT., CIRCULAR A-76 (REVISED),
PERFORMANCE OF COM. ACTIVITIES 1 (May 29, 2003), availableat http://www.whitehouse.gov/sites/
default/files/omb/assets/about_ omb/a76 inc tech correction.pdf [hereinafter OMB A-76).
223. See Federal Activities Inventory Reform Act of 1998 (FAIR Act), Pub. L. No. 105-270, § 2(d), 112
Stat. 2382, 2382 (1998) (codified at 31 U.S.C. § 501 (2006)); OMB A-76, supra note 222, at A (1-4).
224. FAIR Act § 5(2)(A); see also OMB A-76, supra note 222, at A-2 ("These activities require the
exercise of substantial discretion in applying government authority and/or in making decisions for the
government. Inherently governmental activities normally fall into two categories: the exercise of sovereign
government authority or the establishment of procedures and processes related to the oversight of monetary
transactions or entitlements.").
Examples of inherently governmental functions include: (1) binding the U.S to take some action; (2)
determining, protecting, and advancing economic, political, and territorial, property interests by military or
diplomatic action, civil or criminal judicial proceedings, contract management; (3) significantly affecting the
liberty or property of private persons; and (4) exerting ultimate control over U.S. property. See OMB A-76,
supra note 222, at A-2.
225. See National Defense Authorization Act for Fiscal Year 2008, Pub. L. No. 110-181, § 324(a)(1), 122
Stat. 60 (codified at 10 U.S.C. § 2463(b)(1)(B)) (defense agencies); Omnibus Appropriations Act, 2009, Pub.
L. No. 111-8, § 736(b)(2)(A)(ii), 123 Stat. 690 (civilian agencies); see also L. ELAINE HALCHIN ET AL., CONG.
RESEARCH
SERV.
INHERENTLY
GOVERNMENTAL
FUNCTIONS
AND
OTHER
WORK
RESERVED
FOR
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Abolishing the Prohibitionon PersonalService Contracts
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According to the FAR, functions that are not themselves inherently governmental
nonetheless can approach being inherently governmental because of "the nature of
the function, the manner in which the contractor performs the contract, or the
226
manner in which the Government administers contract performance."
b. Obama's Policy Letter on the Proper Use of Contractors
The Obama Administration has taken steps to reign in the explosion of service
contracts. The Administration recently released its new government-wide definition
of inherently governmental functions in a Policy Letter, directing federal agencies
to tighten their use of contractors for "critical functions" and functions "closely
associated" with the core work of those agencies.227 This policy continues the
Obama administration's efforts to swing the pendulum away from contracting for
government functions to the direct performance of government functions by federal
employees. 228
Congress tasked the Obama Administration with (1) reviewing existing
definitions of "inherently governmental function" to determine whether such
definitions are "sufficiently focused" to ensure that only government personnel
perform inherently governmental functions; (2) developing criteria for identifying
"critical functions" that should be performed by government personnel; and (3)
developing criteria for identifying positions that government personnel should
perform in order to ensure that agencies have capacity to perform their missions and
oversee contractors' work. 229 The goal of the Obama Administration in this
proposal was to implement these goals, and ensure that contractors are accountable
to the President. 230
There are at least five reasons why this Policy Letter helps protect against
recklessly contracting out important functions. First, in order to create a single
consistent definition of inherently governmental function, the Policy Letter adopts
the definition in the FAIR Act, as mentioned above,231 as well as giving twentyfour helpful examples of inherently governmental activities such as awarding and
administering contracts, determining budget priorities and hiring or firing federal
PERFORMANCE BY FED. Gov. EMPS.: THE OBAMA ADMINISTRATION'S PROPOSED POLICY LETTER, at
at
available
(2010),
Summary
inthepublicinterest.org/sites/default/files/CRS%202011 %20Inherently/o20Govemmental%20.pdf.
226. FAR § 7.503(d) (2011). The FAR lists 19 functions that "approach being" inherently governmental,
id. at § 7.503(c); see also Gulf Group, Inc., v. United States, 61 Fed. Cl. 338, 341, n.7 (2004) (treating items
on the FAR's list of "functions approaching inherently governmental" as capable of being contracted out by
agencies), and nineteen functions that generally can be contracted out. Id. § 7.503(d). These lists are not
exhaustive.
227. DANIEL 1. GORDON, POL'Y LETTER 11-01: TO THE HEADS OF CIVILIAN EXEC. DEP'TS AND
AGENCIES: PERFORMANCE OF INHERENTLY GOVERNMENTAL AND CRITICAL FUNCTIONS, 76 Fed. Reg. 56227
(Sept. 12, 2011) [hereinafter POL'Y LETTER 11-01] , available at www.gpo.gov/fdsys/pkg/FR-2011-0912/pdf/2011-23165.pdf.
228. OFPP Issues Proposed New Definition of "Inherently Governmental," MCKENNA LONG &
ALDRIDGE LLP (Apr. 2, 2010), www.mckennalong.com/news-advisories-2283.html.
229. See Duncan Hunter National Defense Authorization Act for Fiscal Year 2009, Pub. L. No. 110-417,
§ 321(a)(1)-(4), 122 Stat. 4411 (2008).
230. POL'Y LETTER I1-01,supra note 226, at 56236.
231. Id.
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employees.232 Second, the Policy Letter requires that agencies take certain
preventative and corrective steps in the pre-award and post-award contract phases
to ensure that they do not contract out inherent government functions, or
excessively contract out closely associated and critical functions. 233
Third, the new policy also requires federal agencies, to the maximum extent
practicable, to minimize reliance on contractors performing functions closely
associated with inherently governmental functions-defined as those functions
where "the nature of the function and the risk that performance may impinge on
federal officials' performance of an inherently governmental function."234 Agencies
are required to monitor these closely associated functions so that contractor's
performance of them does not expand to include performance of inherently
governmental functions or otherwise interfere with the government's ability to carry
out inherent functions.235 If agencies find that contractors are performing inherently
governmental functions, agencies need to fix the situation quickly. Moreover, the
policy directs agencies to give special consideration to having these functions
performed by federal employees, mirroring both the Obama administration's policy
preference for government employees over contractors in this area, and the
language of the 2009 Omnibus Appropriations Act,236 which directs the insourcing
of these functions. 237
Fourth, the Policy Letter also regulates critical functions, defined as those
functions that are "necessary to the agency being able to effectively perform and
maintain control of its mission and operations."238 The Policy Letter requires that
agencies (1) dedicate a "sufficient number of employees to the performance of
critical functions so that federal employees may maintain control of agencies'
missions and operations" 239 and (2) make sure the contract is cost effective. 240
Besides those limitation, the Policy Letter otherwise allows agencies to contract out
critical functions. 24 1
Finally, the new policy requires agencies to conduct Strategic Human Capital
Planning to determine what is necessary to develop and maintain their in-house
critical functions at agencies, provide for continuity of operations, retain
institutional knowledge, and ensure sufficient personnel are available to manage
and control contractors. 242
232. Id. at 56240-41. The Policy Letter also creates a number of tests to help agencies identify inherent
governmental functions. Id at 56237-38.
233. Id. at 56238-39.
234. Id. at 56238.
235. Id at 56236.
236. Omnibus Appropriations Act, 123 Stat. at 524.
237. OFPPIssues ProposedNew Definition of "Inherently Governmental, supranote 228.
238. POL'Y LETTER I1-01, supra note 226, at 56236.
239. Id
240. Id at 56238.
241. Id; see also HALCHIN, supra note 225, at 7 (the agency can contract out critical functions provided
that the agency determines in writing, prior to issuing a solicitation, "that it (1) has sufficient internal
capability to control its missions and operations and (2) the cost-savings of private-sector performance
'clearly outweigh' any considerations relating to performance or risk that favor federal employee performance
of the functions.").
242. POL'Y LETTER 11-01,supra note 226, at56237.
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Abolishing the Prohibitionon PersonalService Contracts
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This Policy Letter shows that the Obama Administration is not hostile towards
contractors; rather, Obama is just concerned about the use of contractors for
sensitive functions. 243 This Letter has been praised by contractors and unions alike
because it has provided helpful guidance on what functions should and should not
be contracted out.244
C. Proposalto Amend the FAR's PersonalServices ContractProhibition
Based on this Policy Letter, it seems like the absolute ban on inherent
governmental functions performed by contractors and the preference that important
functions be insourced, should be the primary focus when regulating service
contractors. Examples of contractors performing inherently governmental functions
and closely associated functions are widespread, 245 partially because there has
never been a government wide definition of inherent governmental functions
before,246 nor sufficient monitoring to stop outsourcing these functions.247
The policy reasons against contracting out inherently governmental functions
and closely related functions are more persuasive than the policy reasons for not
using personal service contractors. Inherent functions should not be outsourced
243. Id. at 56236 ("Nothing in this guidance is intended to discourage the appropriate use of
contractors.").
244. Proposed OFPP Policy Letter Would Define "Inherently Governmental," Provide Guidance, 93
FED. CONT. REP. 270 (Apr. 6, 2010) (reporting that both industry groups and unions representing government
employees had positive reactions to the proposed policy letter); Robert Brodsky, Administration Puts its
Stamp on 'Inherently Governmental,' Gov. EXEC. (Mar. 31, 2010), www.govexec.com/dailyfed/0310/
0331 lOrbl.htm (same for industry groups).
245. For example, in every intelligence and counterterrorism agency, contractors are performing
inherently governmental functions, Dana Priest & William M. Arkin, National Security Inc., WASH. POST.
(July 20, 2010), available at projects.washingtonpost.com/top-secret-america/articlestnational-security-incd.
In a recent the GAO report, the U.S. Army identified 2,357 contractors doing inherently governmental
functions, while 45,934 contractors are doing Army jobs that are closely associated with inherently
governmental functions. Gov. ACCT. OFF., GAO-1 1-192, DEFENSE ACQUISITIONS: FURTHER ACTION NEEDED
To BETTER IMPLEMENT REQUIREMENTS FOR CONDUCTING INVENTORY OF SERV. CONTRACT ACTIVITIES 19
(2011). The GAO found that 1,877 contractors are performing unauthorized personal services for the Army as
well. Id. Other military services as well as civilian agencies are probably employing thousands of contractors
with similar conflicts. Pratap Chattejee, Insourcing "Inherently Governmental" Work Will Save Money, Am.
PROGRESS (Jan. 25, 2011), www.americanprogress.org/issues/201 1/01/army insourcing.html.
246. Cf Guttman, Inherently Governmental Functions, supra note 40, at 54 (arguing that the Supreme
Court's two centuries of jurisprudence on inherently governmental functions has failed to explicate the
concept); id. at 65 ("[T]he concept of inherently governmental function has long been a placeholder for a host
of basic and unanswered questions raised by the legacy of mid-twentieth-century government reform.");
Schooner, supra note 33, at 556 n.22 (2005) (describing infighting between government officials over
outsourcing possible inherently governmental functions).
247. Cf Jody Freeman & Martha Minow, Introduction: Refraining the Outsourcing Debates, in
GOVERNMENT BY CONTRACT,, supra note 8, at 4 (finding that there is insufficient oversight of contractors
because agency personnel are insufficiently resourced and badly trained for contract management); Martha
Minow, Outsourcing Power: How Privatizing Military Efforts Challenges Accountability, Professionalism,
and Democracy, 46 B.C. L. REV. 989, 1016 (2005) (finding that current governmental practices allow the
contracting out of inherent government functions because there is an insufficient amount of monitoring); Paul
R. Verkuil, Public Law Limitations on Privatizationof Government Functions, 84 N.C. L. REV. 397, 464-65
(2006) (arguing for greater accountability in determining which activities are inherently governmental by
encouraging exchanges between agencies and outside groups; then the process for commenting on agency
inherently-governmental-function decisions could be regularized by employing procedures associated with
notice and comment rulemaking).
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because we demand that our government be loyal to protecting the public interest,
not private interests. There are also public values we want the government to
maintain, which will be eroded if certain government functions are contracted out to
businesses. It seems that if the government strictly enforced the prohibition on
contractors performing inherent functions and Obama's Policy Letter in general,
this would provide more than adequate protection against contractor abuses.248
As mentioned above, there are three primary reasons why the personal service
prohibition is no longer relevant. First, the original rationale for banning personal
service contracts-that contactor employees could claim they were actual
employees and claim government benefits-has been extinguished by the courts.
Second, the rationale that service contracts let the government evade civil service
laws is no longer persuasive. Personal service contractors are so prevalent today
that it does not make sense to "ban" the practice, when the ban is so often
circumvented. Third, the threat that there will be an improper delegation of an
inherently govemmental function is no longer an issue because the government-as
seen in Obama's Policy Letter-is taking pains to make sure that inherent functions
and closely related functions are no longer contracted out. Resources should be
spent following Obama's policy on both inherently governmental functions and
closely related functions, not on distinguishing between personal and nonpersonal
service contractors. 249
Accordingly, the current FAR 37.104 should be modified to allow personal
services contracts in all cases except for contracts that perform inherently
government functions.250 Paragraph "a." of FAR 37.104 should be amended so that
all services can be contracted out subject to a determination by the responsible
government party that these services are commercial in nature and not inherently
governmental. The rest of this section can be deleted.
This change should be implemented because it reflects the reality that service
contracts are already used to run many government programs. Given the current
budget crisis then, barriers to service contract use should be struck down so that
government officials can utilize service contractors when they will reduce costs.
The Obama Administration is right: clamping down on contracting out of
inherently government functions is the most important inquiry.251 It matters more
248. See Korroch, supra note 213, at 79.
249. The Policy Letter does not take an official stance on personal contractors. It only states that agencies
should follow the current FAR by making sure that the agencies do not award personal service contractors. Or
if personal service contracts are being performed by the agency, the agency is required to take "prompt
corrective action." POL'Y LETTER 11-01, supra note 227, at 562339. As argued throughout the Article, the
personal prohibition is a misguided policy. For instance, the Letter even calls for contractor employees and
government employees to be physically separated at the worksite, and that contractors should be working
offsite. See Brodsky, supranote 244. But this is not good policy because it reduces the ability of government
managers to effectively supervise contract employees.
250. See PERSONAL SERVICES COMM. REP., supra note 132. For a similar proposal, see Ritenburg, supra
note 74 ("[The FAR] should be revised to "expressly recognize that a requirement for personal performance
of an individual or individuals does not necessarily result in an employment relationship.").
251. Cf BARACK OBAMA, THE WHITE HOUSE MEMORANDUM FOR THE HEADS OF EXECUTIVE
available at
(Mar. 4, 2009),
AGENCIES: GOVERNMENT CONTRACTING
DEPARTMENTS AND
http://www.whitehouse.gov/the press office/Memorandum-for-the-Heads-of-Executive-Departments-andAgencies-Subject-Government (finding that "the line between inherently governmental activities that should
not be outsourced and commercial activities that may be subject to private sector competition has been blurred
and inadequately defined. As a result, contractors may be performing inherently governmental functions ...
2012]
Abolishing the Prohibitionon PersonalService Contracts
111
what type of function is being contracted out, not whether the government is acting
like a supervisor over a contractor employee. Although it is difficult to define what
inherent governmental functions actually are, lines eventually will be drawn that
satisfy the need to protect against illegal delegations and the need to utilize
contractors for efficiency gains.
Proponents of privatization will agree with my proposal. E.S. Savas finds that
"false alarms are raised about privatizing services that are said to be 'inherently
governmental': the responsibility for providing the service can be retained by
government, but the government does not have to continue producing it." 252 But
opponents will argue that without banning pure personal service contracts, almost
all governmental functions can be privatized. Besides "a handful of functions
dealing with national security and criminal justice, it is not clear that there is a pure
and inherently governmental function left today." 253 To opponents, then,
overturning the personal service prohibition might be the final nail in the coffin,
thereby opening the floodgates in allowing contractors to do everything except run
the White House.
1. Creating a Public Accountability Regime
Opponents do make a valid point: there is a possibility that removing the
personal service prohibition will further make our government one of contractors,
not of loyal civil servants. That is why there needs to be a public accountability
regime set up to monitor and track contractors. But a blanket ban on personal
service contractors is not the answer. The prohibition is now just a dead letter-the
unfortunate product of bureaucratic inertia 254-that is not steadily followed.
Although accountability is a vague concept, for our purposes it means that
Congress and the Executive will be able to make the contractors answerable for
their mistakes. More specifically, an accountability regime has six important
factors:
[1] who is liable or accountable to [2] whom; [3] what they are liable to be
called to account for; [4] through what processes accountability is to be
assured; [5] by what standardsthe putatively accountable behavior is to be
judged; and, [6] what the potential effects are of finding that those
standards have been breached. These basic features, who, to whom, about
what, through what processes, by what standards, and with what effect,
describe . .. an 'accountability' regime.255
the Federal Government must ensure that those functions that are inherently governmental in nature are
performed by executive agencies and are not outsourced.").
252. E.S. SAVAS, supra note 6, at 62.
253. PAUL LIGHT, THE TRUE SIZE OF GOVERNMENT, supra note 2 at 9-10 (1999).
254. See, e.g. STEVEN KELMAN, UNLEASHING CHANGE: A STUDY OF ORGANIZATIONAL RENEWAL IN
GOVERNMENT 28 (2005) ("Behavior in government organizations is harder to change than in other
organizations-and bureaucratic organization in government is particularly resistant to change.").
255. Jerry L. Mashaw, Accountability and Institutional Design: Some Thoughts on the Grammar of
Governance, in PUBLIC ACCOUNTABILITY: DESIGNS, DILEMMAS AND EXPERIENCES 115, 118 (Michael
Dowdle ed., 2006).
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These basic questions need to be answered when designing programs that personal
service contractors will work on. Agencies need to design programs that can reap
the benefits of contractors, but the programs need to be ones where contractors are
answerable to government officials. Right now, the personal service prohibition
gets in the way of effectively managing contractor employees.
In answering these six questions, it is important to realize that our political
beliefs about outsourcing governmental functions and our normative commitments
to accountability will affect the manner in which we want contractors to be held
accountable to the government.256 The trick, though, is to "design programs [for
personal service contractors] that can be made accountable, not accountability
regimes that support programs." 257 In other words, we need to figure out what
positions can and should be outsourced to personal service contractors, and which
positions should never be outsourced.
This means that Congress and the President need to continue to work together
to systematically classify what jobs or categories of jobs are inherently
governmental, and therefore not subject to outsourcing. One example of classifying
functions comes from President Clinton's administration, when he classified air
traffic controllers as inherently governmental.258 (President George W. Bush then
abolished this order. 259) Thus, the political branches-based on their normative
commitments of which jobs should be outsourced-are perfectly capable of
defining what functions are inherently governmental. Further, since Obama's Policy
Letter could be modified at any time, Congress always has the option of codifying
it, or amending it to Congress's liking. The point is that the political branches
should do a better job of specifically defining what functions can or cannot be
contracted out in the first place. The question that should be answered is why, or
under what circumstances, is it preferable to use personal service contractors? 260
Democrats have introduced legislation that removes agency discretion to
contract out inherently governmental functions, functions closely related to
inherently governmental functions, and mission essential functions. These
functions, according to this bill, should be performed by Federal employees.261 This
legislation seems to be a good start, but subsequent legislation should also abolish
the prohibition.
256. Id. at 155.
257. Id. at 156.
258. Executive Order 13180, 65 Fed. Reg. 77493 (Dec. 7, 2000) (designating the "provision of air traffic
services" as an inherently governmental function).
259. Executive Order 13264, 67 Fed. Reg. 39243 (June 4, 2002) (removing this designation).
260. See John Donahue, Op-Ed., Outsourcing the Wrong Jobs, N.Y. TIMES (Apr. 4, 2011),
http://www.nytimes.com/roomfordebate/2011/04/03/is-privatization-a-bad-deal-for-cities-andstates/outsourcing-the-wrong-jobs ("Tasks that are well-defined, easy to monitor and available from
competitive suppliers ... are prime candidates for privatization. Tasks that are complex and mutable, lack
clear benchmarks or are immune from competition ... should be kept in-house.").
261. See Correction of Long-Standing Errors in Agencies' Unsustainable Procurements Act of 2009, S.
924, 111th Cong. §5(a) (2009) (introduced by Senator Barbara A. Mikulski, D-MD); see also Letter from
Senator Barbara A. Mikulski et al., to Peter Orszag, Director of the Office of Management and Budget (Mar.
18, 2010) available at http://mikulski.senate.gov/_pdfs/Press/MikulskiLetterToOrszag.pdf ("Specifically, we
suggest that the new 'inherently governmental' definition include ... [a]n expansion of the definition to cover
all sensitive functions so that managers won't need designations like 'core,' 'critical,' and 'mission-essential'
to shield jobs they know are best performed by federal workers.").
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113
Opponents of this Article's proposal will argue that we will run into the same
enforcement problem with the personal service prohibition. In this case though,
they will argue, contracts would be written saying that they are not for inherently
governmental functions, but the contract will actually be used for inherent
functions.
My answer is that we need to build an accountability regime that can reign in
potential abuses. Besides categorizing what jobs can be contracted out, there needs
to be accountability over federal programs that are run by contractors. This means
that administrative statutes should be amended to improve public oversight of
privatized programs, there should be greater regulation and contractual controls on
recipients of government funds, and participants in privatized government programs
run by contractors should probably have private law remedies.262 Further, public
law norms should be imposed on personal service contractors that have highly
discretionary duties of fundamental importance, and are received by vulnerable
populations.263
Further, given the reluctance of the political branches to change, courts should
have more of a role to play when government service contractors do harm.
Traditionally, courts will hold private actors accountable if they are considered state
actors that work on behalf of the government. The test of whether a contractors is a
state actor is whether their activity "may be fairly treated as that of the State [i.e., a
government] itself."264 Thus, if a court finds that a private contractor is a state
actor, this means that the contractor can be directly liable for constitutional
violations. But, according to Professor Metzger, courts do not have to directly apply
these constitutional limits to private actors to achieve constitutional
accountability265
[T]he crucial constitutional question is whether adequate accountability
mechanisms exist by which to ensure that private exercises of government
power comport with constitutional requirements. If such mechanisms are
lacking, the appropriatejudicial response is not subjecting private entities
to direct constitutionalscrutiny, but instead requiring that the government
create such mechanisms as the constitutionally-imposedprice of delegating
government power to private hands. A central advantage of this approach
262. See Metzger, supra note 12, at 1372. For proposals to reform administrative statutes and oversight,
see Alfred C. Aman, Jr., Privatizationand the Democracy Problem in Globalization: Making Markets More
Accountable Through Administrative Law, 28 FORDHAM URB. L.J. 1477, 1500-05 (2001). For proposals to
expand conditions on funding, see MARTHA MINOw, PARTNERS, NOT RIVALS: PRIVATIZATION AND THE
PUBLIC GOOD 112-19, 142-50 (2002); Barbara L. Bezdek, Contractual Welfare: Non-Accountability and
Diminished Democracy in Local Government Contractsfor Welfare-to-Work Services, 28 FORDHAM URB.
L.J. 1559, 1608-10 (2001); Jody Freeman, Extending Public Law Norms, supra note 6, at 1315-17. For
arguments on the importance of private law remedies, see Jack M. Beermann, Administrative-Law-Like
Obligations on PrivatizedEntities, 49 UCLA L. REV. 1717, 1721-24 (2002) (arguing that existing corporate
law doctrines offer means of ensuring accountability); Freeman, The ContractingState, supra note 5 at 20107 (2000) (discussing ways to use government contracts to enhance accountability in privatized governance);
Michele Estrin Gilman, Legal Accountability in an Era of PrivatizedWelfare, 89 CALIF. L. REV. 569, 635-39
(2001) (emphasizing potential of a contractual third-party beneficiary approach to ensure accountability of
privatized programs).
263. Freeman, Extending PublicLaw Norms, supranote 6, at 1343-48.
264. Brentwood Acad. v. Tenn. Secondary Sch. Athletic Ass'n, 531 U.S. 288, 295 (2001) (alteration to
original) (quoting Jackson v. Metro. Edison Co., 419 U.S. 345, 351 (1974).
265. Metzger, supranote 12, at 1374.
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is that it gives governments an incentive to adopt measures that protect
against potential private abuses.
..
. Equally important, avoiding direct
constitutional scrutiny of private actors allows the government greater
flexibility because the government can choose among a variety of
accountability mechanisms in structuring instances of privatization to meet
constitutional demands. 266
Metzger's approach should be adopted by courts. Thus, if Congress does not set up
an accountability regime, courts could impose accountability regimes themselves to
guard against constitutional violations by private actors.
2. Mandatory Reform: Congressional Oversight of Personal Service Contracts
No matter what happens with the prohibition, there needs to be better
monitoring of service contracts. If the prohibition is overturned, there definitely will
need to be better monitoring. If the prohibition is kept, it still needs to be enforced,
which also requires monitoring. Indeed, the federal contracting oversight regime is
broken. 267
There is a range of opportunities for Congress to monitor personal services
contracts by executive agencies: formal review of service contracts where contracts
are sent to Congress for scrutiny prior to their execution; informal meetings with
agency officials to voice concerns about a particular contract; threats to withhold
agency funding for the relevant programs unless the contracts are rewritten; public
grandstanding to shame the agency into crafting a new deal; or gentle reminders to
the agency that the legislators are keeping watch. 268
This oversight should, in theory, provide more accountability over personal
service contracts.269 Congress can force agency heads to testify about why they are
using personal service contracts, or using contractors for inherent governmental
functions. The purpose of this oversight is to force agencies to change their
practices, or be sanctioned. Ultimately, Congress has control over the funding,
which it can cut off if an agency is recalcitrant. 270
266. Id. (emphasis added); see also Robert S. Gilmour & Laura S. Jensen, Reinventing Government
Accountability: Public Functions, Privatization, and the Meaning of "State Action," 58 PUB. ADMIN. REV.
247, 253-56 (1998) (arguing that there needs to be greater control systems over contractors, which could be
done by following the author's four-part test for recognizing state action); Harold J. Krent, The Private
Performing the Public: Delimiting Delegations to Private Parties, 65 U. MIAMI L. REV. 507, 554 (2011)
("Constitution does not authorize private parties to exercise decisional authority over their peers. The interest
in accountability presupposes that only publicly responsible entities affect the legal rights of private parties.").
267. Senator Russ Feingold, Statement for the Record, Federal Contracting Oversight and Reform Act of
2010, S. 3362-3363, 111th Cong. (2010), availableat http://ombwatch.org/files/budget/Feingold
Statement.pdf
268. Michaels, supra note 6, at 769-70; see also Jack M. Beermann, CongressionalAdministration,43
SAN DIEGO L. REV. 61, 69-71 (2006); Matthew McCubbins & Thomas Schwartz, Congressional Oversight
Overlooked: Police Patrols Versus Fire Alarms, 28 AM. J. POL. SC. 165, 165-67 (1984). Congressional
inquiries can reach employment matters and the assignment of personnel too. JERRY L. MASHAW ET AL,
ADMINISTRATIVE LAW: THE AMERICAN PUBLIC LAW SYSTEM 172 (6th ed. 2009).
269. But see Jody Freeman & Martha Minow, Introduction: Reframing the Outsourcing Debates, in
GOVERNMENT BY CONTRACT, supra note 8, at I ("Yet even when Congress does actively investigate
wrongdoing, the hearings and follow-up measures tend to be reactive and superficial, offering relatively little
by way of meaningful reform.").
270. MASHAW, supra note 268, at 168.
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If the prohibition is abolished, one of the first oversight changes that Congress
should enact is to require all agencies to give annual reports to Congress about their
use of personal service contracts. This self-reporting would provide valuable
information to our political leaders so they can make more informed decisions. This
is what happens at the DOD. The DOD has wide latitude to enter into personal
service contracts, 271 but it is required to submit an annual report to Congress on its
use of personal services contracts.272 This DOD model should be implemented
throughout the government.
Despite some of the benefits of congressional oversight, many commentators
claim that congressional oversight is neglected and ineffective.273 Congress may be
good at fire alarm oversight, where it oversees executive agencies in response to
complaints.274 But Congress is not good at centralized police-patrol oversight,
where Congress "examines a sample of executive agency activities, with the aim of
detecting and remedying any violations of legislative goals and, by its surveillance,
discouraging such violations." 275 There are many reasons why Congress prefers
putting out fires instead of looking for problems before they happen.276 But the
personal services contracting phenomenon is a fire by any estimate, and it should be
sounding Congress' alarms.
There is also the possibility that legislators will "hijack oversight of the
contracts such that parochial interests prevail."277 A legislator might have a
powerful contractor in her district who is a large donor; that Congressperson might
be tempted then, to do everything she can in the oversight process to make sure this
contractor can keep her contract, even if keeping the contractor is not in the public
interest. It is well known that political parties tend to distort the oversight
process. 278
271. See 10 U.S.C. § 129b (2006). Moreover, 48 C.F.R. 206.001(b) of the Defense acquisition regulations
states that personal service contracts are expressly authorized at the DOD by 10 U.S.C. § 1091 (2006).
272. 10 U.S.C. §2330a (2006).
273. See, e.g., James B. Pearson, Oversight: A Vital Yet Neglected CongressionalFunction, 23 U. KAN.
L. REv. 277, 281 (1975) ("Paradoxically, despite its importance, congressional oversight remains basically
weak and ineffective"); id. at 288 ("[O]versight is a vital yet neglected congressional function.").
274. McCubbins & Schwartz supra note 268, at 165-67; see also Bernard Rosen, HOLDING
GOVERNMENT BUREAUCRACIES ACCOUNTABLE 87 (3d ed. 1998) (finding that unless the oversight activity
reveals a scandalous situation with possibilities for favorable publicity for the legislator, the work is
considered dull and potentially troublesome .... ); U.S SENATE COMM. ON Gov'T. OPERATIONS, 9 5T1
CONG.: STUDY ON FED. REGULATION: CONG. OVERSIGHT OF REG. AGENCIES 66 (Comm. Print 1977) ("The
oversight effort is usually initiated not in accordance with any preplanned set of priorities, but rather in
response to a newspaper article, a complaint from a constituent or special interest group, or information from
a disgruntled agency employee.").
275. McCubbins & Schwartz, supra note 268, at 166. But see JOELD. ABERBACH, KEEPING A WATCHFUL
EYE: THE POLITICS OF CONGRESSIONAL OVERSIGHT 95 (1990) (finding that Congress is well equipped to
monitor executive branch activities through police-patrol oversight).
276. McCubbins & Schwartz, supra note 268, at 167-169. But see ABERBACH supra note 275, at 95
(finding the reactive style is more typical than other styles but not overwhelmingly so, and that the fire-alarm
style, identified as typical of congressional committees, is not dominant).
277. Michaels, supra note 6, at 770.
278. The party in Congress that is loyal to the President is going to challenge the Executive less often. For
instance, the Obama Administration faced relatively little congressional oversight in the first two years of
office when Congress was controlled by Democrats. In this time, the House Oversight and Government
Reform panel has held 197 oversight hearings. Gail Russell Chaddock, With New Oversight Powers, House
GOP Aims to Put Obama on Defensive, CHRISTIAN SCI. MONITOR (Jan. 13, 2011),
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In any event, the proper default rule for congressional oversight should be one
where contractors can be easily monitored. Right now, there is no such system. That
is why Congress should enact the Federal Contracting Oversight and Reform Act of
2010279 or a similar bill. This Act will allow all members of Congress and the
American people to view the database that compiles contractor performance and
misconduct statistics; the Act also creates a mechanism for an annual report on
contractor abuse, and it is requires IGs of each federal agency involved in the
procurement process to conduct an annual audit of the agencies contracts.280 Given
the current importance of service contractors to the proper functioning of our
government, increased contractor oversight is necessary.
CONCLUSION
This Article has shown that the prohibition on personal service contracts is an
inefficient constraint on the Executive and a dead letter. The prohibition should be
abolished, but before that can be done, there needs to be a compliance system set up
to monitor the use of personal service contractors. Congress and the White House
need to continue the difficult task of systematically identifying what jobs are
inherently governmental and critical to agencies. 281
Eventually, the goal should be to figure out what jobs or functions should be
contracted out and which should be provided in-house.282 Given the ongoing
struggle over the federal budget, scholars, legislators, and policymakers should
continue to examine where service contractors would bring the most savings.
Overall, following Obama's policy on the use of contractors is more helpful for
stopping contractor abuses than following the prohibition.
The regulations that should be created to fix the service-contracting issues
discussed in this Article should not be so burdensome that they undermine the
efficiency reasons for outsourcing in the first place.283 Even the Obama
Administration finds that personal service contractors can bring efficiencies:
www.csmonitor.com/USA/Politics/2011/0113/With-new-oversight-powers-House-GOP-aims-to-put-Obamaon-defensive. But after Republicans swept the 2010 midterm elections, the Republican chairman had planned
for over 280 hearings in 2011 alone. Id. The reality is that legislatures probably identify more with their party
rather than their institution (Congress). This means that the political party who does not have control over the
presidency will be more likely to provoke an unwarranted fight over contractors, or the political party who has
the presidency is more likely to let the executive evade the personal services prohibition. See Daryl J.
Levinson & Richard H. Pildes, Separation of Parties,Not Powers, 119 HARV. L. REV. 2311, 2314 (2006);
Michaels, Privatization'sPretensions,supranote 6, at 770.
279. Federal Contracting Oversight and Reform Act of 2010, S. 3233, 11 Ith Cong. (2010).
280. Id.
281. Government officials should make every attempt to continue to standardize across government what
functions can permissibly be outsourced. The current the Policy Letter leaves room for agencies to classify
functions inconsistently, since each individual agency will be making its own decisions about whether the
function is inherently governmental, closely associated, or critical. See OFPP Issues Final Policy Letter
Defining "Inherently Governmental Functions," MCKENNA LONG & ALDRIDGE LLP (Sept. 20, 2011),
www.mckennalong.com/news-advisories-2605.html.
282. Similarly, policymakers should always consider why, or under what circumstances, it could be
preferable to use contractors. See HALCHIN, supra note 225, at 17.
283. See, e.g., Kelman, supra note 8, at 162-64 (viewing additional rules as undermining privatization's
efficiency goals); Richard J. Pierce, Jr., OutsourcingIs Not Our Only Problem, 76 GEO. WASH. L. REv. 1216,
1219 (2008) (citing proposed legal remedies to privatization as overly burdensome on unproblematic
contracts).
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"[c]ontractors can provide expertise, innovation, and cost-effective support to
federal agencies for a wide range of services."284 Of course, when making these
proposed reforms, policymakers should ensure that the public values of government
are not circumvented.
What I propose will be an arduous task, but it is a necessary step to better
provide federal agencies with cost-effective support. Given these economic times,
Congress and the Executive should take note.
284. POL'Y LETrER I 1-01,supra note 227, at 56236 (emphasis added).